After the first block of Bitcoin was created 15 years ago (with one incorrect announcement in between), the US Securities and Exchange Commission SEC has given the green light to Bitcoin exchange-traded funds.
This means Bitcoin is now officially part of the financial system it originally aimed to change. The approval allows investors to access 11 spot Bitcoin ETFs, including ones from Grayscale, Fidelity, BlackRock, and other companies.
“Although we have given the green light for the listing and trading of specific spot bitcoin ETP shares, it’s important to note that we have not officially endorsed or approved Bitcoin,” stated SEC chairman Gary Gensler in a released statement. He stated that investors should exercise caution due to the numerous risks associated with Bitcoin and products linked to cryptocurrencies.
Understanding the Past 10 Years
Over the past decade, the SEC has consistently rejected all efforts to establish a Bitcoin ETF, a collection of assets functioning somewhat like a mutual fund. Unlike mutual funds, these entities are traded on exchanges, allowing stock market participants to conveniently purchase or sell them. This is significant because it simplifies the process of investing in Bitcoin, eliminating the need to set up your own wallet.
This could be sufficient to encourage specific investors who have been hesitating to enter the cryptocurrency realm. The passion among crypto investors stems from the fact that companies issuing ETFs will need to acquire corresponding amounts of Bitcoin to support their funds.
Approval of Bitcoin ETFs and Impact on Market
The announcement today had little impact on Bitcoin’s price. Nevertheless, over time, a Bitcoin ETF simplifies the entry of traditional institutional investors into the crypto space. This means entities like pension funds and insurance funds may have the opportunity to engage in Bitcoin speculation for the first time, potentially increasing the demand for Bitcoin.
Presently, a common way to invest in cryptocurrency is by purchasing shares of companies focused on crypto, like Coinbase and MicroStrategy, which holds over $8 billion worth of Bitcoin as of January. The introduction of a Bitcoin ETF could potentially diminish the value of these companies.
Until recently, the SEC consistently rejected all applications for Bitcoin ETFs, expressing concerns about their safety for investors. However, in April of last year, a court decision deemed the SEC’s rejection of a Grayscale ETF as “arbitrary and capricious,” paving the way for today’s approval. It’s worth noting that an ETF based on Bitcoin futures already exists.
Additionally, there was some confusion yesterday when the SEC’s Twitter account was briefly hacked, falsely claiming approval of Bitcoin ETFs.
The approval of Bitcoin ETFs is a big step, officially blending Bitcoin into the financial system. SEC Chairman Gary Gensler urges caution, but it opens doors for traditional investors. The impact on companies and a recent hacking incident highlight the changing landscape of cryptocurrency investments.