The $600 billion mark for crypto

A US appeals court ordered the Securities and Exchange Commission (SEC) to review Grayscale's application for a bitcoin exchange-traded fund (ETF) in August. A little-intended consequence of that decision was that it could open the floodgates for $600 billion of new cash to enter the cryptocurrency market.

ETFs offer investors a regulated way to gain exposure to various asset classes, including Bitcoin (BTC). The approval of the Bitcoin ETF democratizes investments in the cryptocurrency sector, similar to how the iShares MSCI Brazil ETF and VanEck Brazil Small-Cap ETF democratized investing in the Brazilian market.

Despite some hurdles, market analysts expect Bitcoin ETF approval as early as 2024. A Bitcoin ETF could unlock an estimated $600 billion in new demand, more than double the roughly $550 billion fully buried market cap, according to a Bernstein analyst report in September. Which is Bitcoin today?

Related: 10 Years Later, There's Still No Bitcoin ETF – But Who Cares?

However, these forecasts are estimates, the actual results depend on various factors such as market dynamics, company strategies and regulatory responses. Notably, the SEC has repeatedly delayed its decision on Cathy Wood's Ark 21Shares Bitcoin ETF application. In August, Wood explained her expectations for these delays, noting that the SEC would approve multiple Bitcoin ETFs at once. But on September 26, the SEC further extended the decision period to January 10.

SEC Chairman Gary Gensler's delays and denials of Bitcoin ETF applications have drawn criticism and fueled investor frustration. Bipartisan legislative group Gensler urged this MO to grant immediate approval to ETFs, arguing that there is no reason to ban crypto ETFs, which they believe will improve investment protections, after the grayscale court ruling. This congressional push further complicates the road to a Bitcoin ETF, adding to uncertainty as the ARK 21Shares Bitcoin ETF decision date approaches.

In conjunction with the SEC's consultation on Bitcoin ETFs, major players in the crypto industry are actively lobbying for new rules. Coinbase, for example, is leading one of the largest lobbying efforts in the crypto industry, aiming to gain support among lawmakers to introduce new regulations. As we continue to observe these evolving developments, it is becoming increasingly clear that the future of crypto regulations is highly contested.

Recent developments suggest further potential delays to the approval of Bitcoin ETFs in general. Bloomberg ETF analyst James Seifert speculates that the SEC's recent rulings may delay the chances of ETF approval in 2023. Submissions from major players like BlackRock, Bitwise and Wisdomtree will be reviewed in the third week of October. However, the SEC's latest action on ARK 21Shares has sparked speculation that other filings due for review in mid-October, from VanEck, Invesco, Fidelity and Valkyrie – may also face delays. So it remains to be seen whether there will be any significant updates to these apps in the near future.

To better understand the implications of these ETFs, let's examine the concept of assets under management (AUM). AUM represents the total market value of financial assets that an entity or advisor manages on behalf of its clients. This critical metric in the investment world serves as a performance indicator. Consider the following table for further understanding.

Financial institutions with high AUM, such as BlackRock, can earn more from management fees if they successfully launch a Bitcoin ETF.

As competition in the Bitcoin ETF market intensifies, it could drive down management fees, impacting revenues.

Investment firms charge these fees for managing the fund, typically from 0.20% to 2.00%. Due to increasing competition, cost-effective investment strategies and investors' desire for transparency, a trend towards reducing management fees has recently been observed.

How does Greyscale generate income from ETFs?

Grayscale generates its income through management fees from Exchange-Traded Funds (ETFs), such as its proposed Bitcoin ETF. These fees are calculated as a percentage of total assets under management (AUM).

For its existing product, Greyscale Bitcoin Trust (GBTC), the company charges an annual fee of 2 percent.

Let's break down how this works with some real numbers. If we take the reported $16.2 billion in assets in the Bitcoin Trust and apply a management fee of 2%, this means that Grayscale generates $324 million in annual management fees from the Bitcoin Trust alone.

If Greyscale succeeds in turning GBTC into a Bitcoin ETF, AUM could increase due to the ETFs' appeal to institutional investors, which will increase management fees. However, Greyscale plans to lower fees when converting to ETFs, although specific figures were not provided.

Related: BlackRock's Misguided Effort to Create ‘Crypto for Dummies'

The conversion is subject to SEC approval. Grayscale recently won a legal case against the SEC, which paved the way for the approval of a Bitcoin ETF. Similarly, the SEC extended its decision-making period on the ARK 21Shares Bitcoin ETF.

The approval of the Bitcoin ETF is a big step for mainstream crypto acceptance. The court's decision calls into question the SEC's exclusive authority over digital assets, suggesting that other bodies such as the courts and Congress may influence crypto regulations. This can lead to wider crypto acceptance, making Bitcoin investment more accessible and controlled, attracting more capital to the crypto market.

A possible approval could have geopolitical implications, setting a precedent for other countries and accelerating the global adoption of cryptocurrencies.

Of course, despite the court's ruling, several hurdles remain. But it signifies progress, and rewards await those ready to embrace change.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.