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Spot ETPs: A New Era For Bitcoin Or A Gateway For Traditional Finance?

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Spot ETPs: A New Era For Bitcoin Or A Gateway For Traditional Finance?

On January 10, 2024, the crypto industry witnessed a notable development. The U.S. Securities and Exchange Commission (SEC) approved the listing and trading of several spot Bitcoin
BTC
exchange-traded product (ETP) shares. This decision raises critical questions about the SEC’s evolving stance on crypto assets. Is this a genuine shift in their attitude towards crypto assets, or is it merely a strategic move favouring traditional financial institutions? It appears that by approving these specific ETPs, the SEC might be selectively opening doors for established banks to carve out their preferred segments in the crypto market. This could potentially sideline innovative startups, who have invested decades in building this industry and letting the more traditional players in the financial sector take the frosting from the cake.

A bit of history

The SEC categorises most crypto assets as investment contracts, making them subject to U.S. securities laws. Consequently, issuing crypto assets requires compliance with significant regulatory requirements, a hurdle too high for many start-ups and even established companies in the crypto industry. It is crucial to acknowledge the presence of numerous fraudsters in the crypto market, and thus, the need for the SEC to become more diligent and strict. However that being said, it is important to emphasize that every novel sector invariably draws in those looking to exploit its nascent state for illicit gain. This pattern is not new; even the securities market, now well-regulated, took decades to establish robust regulations. This lengthy process of regulation and oversight development is a common trajectory for emerging industries as they balance innovation with the need to deter and manage fraudulent activities.

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However, one must question the fairness of a regulatory approach that permits established industries to take over an emerging sector, just right before it becomes truly viable.

Introducing Bitcoin ETF and ETP

According to Coindesk, Bitcoin ETFs are publicly traded investment funds that allow investors to invest in Bitcoin without owning the actual crypto asset. This setup frees the investors from dealing directly with the crypto regulation. The ETFs are traded on traditional securities exchanges, and investors buy shares in a fund that holds Bitcoin. While there have been many attempts to launch crypto-linked ETFs since 2014, the first U.S. Bitcoin ETF (BITO) began trading on October 19, 2021. ProShares, a well-known ETF issuer, was allowed by the SEC to create this fund. The fund debuted as one of the most heavily traded ETFs in market history, attracting more than $1 billion in assets within its first days.

In January 2024, the BITO reached its all high of over $2 billion assets.

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Although the SEC approved a few Bitcoin ETFs, in 2023, it rejected the applications to list spot Bitcoin exchange-traded product (ETP). The main difference between the two is that the Bitcoin spot ETP invests directly in Bitcoins as an underlying asset, whereas the Bitcoin futures ETFs invest in derivatives contracts based on Bitcoin prices.

One could ask – what is the difference between the Bitcoin spot ETP and owning the Bitcoin directly? On a very basic level, the first is regulated and in the majority of cases, managed by established financial entities, and the other is not, while the underlying asset is the same – Bitcoin.

Allowing for the Bitcoin spot ETP

The first application for Bitcoin spot ETP was filed with the SEC on July 1, 2013, by the Winklevoss brothers. Since then, multiple applications have been filed under the federal securities regulation, all rejected by the SEC on grounds of anti-fraud and investor protection. Meanwhile, the SEC permitted derivative products – the Bitcoin ETFs, creating a noticeable double standard. This inconsistency was finally challenged by Grayscale Investments, LLC in 2022. On August 29, 2023, the DC Circuit Court of Appeals ruled this double treatment as “arbitrary and capricious,” criticizing the SEC for failing to “ explain its different treatment of similar products.”

The SEC did not appeal this decision and instead initiated a review of 11 applications for Bitcoin spot ETPs.

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What does this mean?

The SEC approved 11 applications for spot Bitcoin ETPs, and entities such as Blakcrock, Grayscale, Fidelity, VanEck, ARK 21Shares and others, allowing them to invest in Bitcoin and create derivative products for retail investors. This decision culminated in a significant trading volume of $4.6 billion – on the first day of trading – January 11, 2024, indicating a strong market interest.

This situation underscores the need for the SEC to rethink its approach to regulating crypto assets. The current stance is somewhat paradoxical. The SEC imposes strict limitations on primary crypto activities and innovative start-ups, often suggesting a view of crypto activities as potentially fraudulent. Yet, simultaneously, it facilitates secondary trading through established financial institutions. This implies that only a select few are deemed capable of safely engaging in the crypto market.

The SEC’s approach of creating space for traditional financial entities in the crypto space while tightly constraining grassroots crypto activities points to an unusual standard of operation that may need reevaluation to ensure a more balanced and inclusive market.

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Finance

Man who built Guernsey finance charity retires

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Man who built Guernsey finance charity retires

A charity has announced its new chair following the retirement of its founder.

Peter Neville worked for more than five years to set up Guernsey Community Savings, which first opened its doors in September 2020 to support people who were not able to access mainstream banking, staff said.

Former banker James Ellis is taking over the role. Neville said: “James brings exactly the right blend of financial services experience, charitable involvement and community understanding.”

The charity had helped about 200 people, who would otherwise have been excluded from the financial system access, to accounts and linked debit cards, and offered money‑management guidance to many more, staff said.

Neville said: “The initiatives now being discussed, together with the additional features offered by the new money‑transmission platform, reassure me that James’s vision aligns perfectly with the aims we set in those early days.

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“I wish the board and GCS staff every success as they take the charity forward.”

Ellis said: “‘The creation of Guernsey Community Savings in 2020 was only possible because of Peter’s unique set of qualities that enabled him to create a talented team and the structure to tackle the issues facing the financially excluded in our island.

“I was delighted when he asked me to continue with his work and further expand his vision, which I share, to provide help in the form of bank accounts, debit cards and financial education and to realise our ambition to provide grants and soft loans where needed.”

He added he was pleased Neville agreed to remain involved with the charity as life president.

Follow BBC Guernsey on X and Facebook and Instagram. Send your story ideas to channel.islands@bbc.co.uk.

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Hong Kong’s first 5-year plan to tackle economic gaps, boost jobs: Paul Chan

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Hong Kong’s first 5-year plan to tackle economic gaps, boost jobs: Paul Chan

Hong Kong’s first five-year plan will map out concrete paths to address the city’s shortcomings and magnify socio-economic benefits, including how artificial intelligence can create quality jobs, the financial chief has said a day ahead of the public consultation on the blueprint.

Financial Secretary Paul Chan Mo-po said on Sunday that the key task for the blueprint would be the upgrading and transformation of the city’s economy, vowing to press ahead with the Northern Metropolis megaproject and make it a “spatial carrier for deploying emerging and future industries”.

“Hong Kong’s five-year plan aims not only to provide greater momentum for economic development and better application of technology, but also to promote more inclusive and equitable development in society, provide residents with more quality employment opportunities, and create a better life,” he said in his weekly blog.

The efforts to formulate Hong Kong’s first five-year plan are led by Chief Executive John Lee Ka-chiu, and the blueprint is expected to be finalised by the end of 2026.

Lee said last week that the public consultation for the outline would begin on Monday, confirming an earlier South China Morning Post report.

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The public can submit views via dedicated websites during the two-month period, and the government would hold multiple sessions to gather input from various sectors, including lawmakers and industry representatives.

The blueprint aims at aligning Hong Kong’s development with China’s 15th five-year plan, which positions the city as an international hub for finance, shipping, trading, innovation and technology, offshore yuan and global talent.

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Finance

2 Awkward Talks to Have With Your Kids Before They’re 18 (Not ‘That’ One)

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2 Awkward Talks to Have With Your Kids Before They’re 18 (Not ‘That’ One)

As children reach adulthood, many parents assume they’ll still be able to step in when needed. In reality, that dynamic often changes quickly. Once a child turns 18, parents can lose both visibility and influence in ways they may not expect.

That’s why I suggest having two difficult conversations that can make a meaningful difference: The first helping your children build financial literacy, and the second ensuring you can support them effectively in a medical emergency.

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