On January 10, 2024, the United States Securities and Exchange Commission (SEC) approved the listing and trading of a number of shares in Bitcoin Spot Exchange Traded Funds (ETF). Spot ETF in this context means that the fund tracks the up-to-the-second Bitcoin price on a one-to-one basis. Furthermore, the fund actually holds bitcoins. This makes it possible for institutional investors to invest in Bitcoin without having to purchase Bitcoin directly. The SEC has for many years objected to the approval of Bitcoin ETFs, but now sees many advantages in the approval. This is because investing in regulated products such as ETFs also entails information obligations towards investors. Of course, there is also ongoing supervision by the SEC. For example, the existing regulations on investment funds and standards of conduct for fund providers and managers apply to the purchase and sale of approved Bitcoin ETFs. Thus, broker-dealers who recommend investments in ETFs to retail investors must act in their best interests. The SEC emphasizes that no crypto trading platforms or intermediaries were approved or endorsed in its January 10, 2024 decision. The approval of Spot ETF is therefore intended to prevent investments in unregulated financial products that are related to Bitcoin. In Germany, a spot ETF that only tracks the value of Bitcoin would not be permitted. In Germany, such funds must always invest in several securities.
Wasn’t There Already a Bitcoin ETF?
Bitcoin ETFs have already been marketed and approved in the past. However, these were not spot ETFs in the USA. No real Bitcoin was deposited. These were regularly so-called Bitcoin Future ETFs. Unlike ETFs, Bitcoin futures are traded on specialized trading venues based on dates and future prices. These futures are intended to allow investors to participate in price gains without holding Bitcoin. Unlike a spot ETF, however, the problem with futures is that they may react with a time lag. Institutional investors are also regularly not allowed to invest in such products without a physical deposit. The approval of Bitcoin spot ETFs in particular makes Bitcoin potentially accessible to a larger group of investors. Should a price structure emerge in which the fees for the acquisition of shares in a Bitcoin Spot ETF are more favorable than the procurement of Bitcoin directly via a crypto exchange, investors can also benefit from this accordingly.
Bitcoin May Also Be Used as a Reference Value in Germany
As explained above, it is currently not possible to launch a pure Bitcoin spot ETF in Germany. However, Bitcoin can be used as a reference value for other financial products. The term Bitcoin Exchange Traded Notes (ETN) refers to debt securities that are traded on the stock exchange and whose payout conditions are based on the performance of Bitcoin. The structuring options are numerous. For example, it is possible to bet on falling or rising prices or to integrate leverage into the product. In Germany, if these products are offered to retail investors, they are subject to the documentation requirements under the Prospectus Regulation or the WpPG or the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (PRIIPs). In this respect, there may be an obligation to publish a securities prospectus or a key information document. Financial contracts for difference (CFDs) can also use Bitcoin as a reference value. However, it is particularly important to ensure that CFDs entered into with retail investors meet the requirements of the BaFin general ruling of July 23, 2019. With the general ruling, BaFin restricted the marketing, sale and distribution of CFDs to retail investors in Germany.
Attorney Dr. Konrad Uhink
The lawyer responsible for providing advice on the issuance of electronic securities and security tokens in our law firm is attorney Dr. Konrad Uhink.