In a groundbreaking development for the cryptocurrency sector, the US Securities and Exchange Commission (SEC) has approved the first US-listed exchange-traded funds (ETFs) tracking Bitcoin. This decision marks a pivotal moment for the world’s most prominent cryptocurrency and the wider digital currency industry.
The endorsement came after a whirlwind 24 hours for Bitcoin, which included a tweet from the SEC’s account announcing the approval of these eagerly awaited ETFs on Tuesday. This announcement saw Bitcoin’s value surge by over $1,000. However, the SEC later stated that its account had been compromised and the tweet was unauthorised.
By Wednesday, the approval was officially confirmed by the SEC, which added a note of caution about its stance on cryptocurrencies.
This approval allows for the launch of 11 Bitcoin ETFs in the US, offering a new gateway for investors who prefer not to engage directly with Bitcoin purchases.
An ETF presents a more straightforward method for investing in assets or collections of assets without purchasing them directly. For instance, the SPDR Gold Shares ETF enables investments in gold without the need for physical storage or security.
Bitcoin ETFs promise to be as easily tradable as their stock exchange counterparts.
Before the introduction of Bitcoin ETFs, investors keen on owning the digital currency had to navigate digital wallets or open accounts on cryptocurrency trading platforms like Coinbase or Binance. Advocates of digital currency believe that this development will propel the once obscure corner of the internet further into the financial limelight.
The green light for these ETFs represents a significant victory for substantial fund managers like BlackRock, Fidelity Investments, and Invesco, all of whom have been ardent proponents for the SEC’s approval.
Some of these products are set to begin trading as early as Thursday, igniting a fierce battle for market dominance.
Despite this endorsement, the SEC maintains a deep-seated scepticism towards cryptocurrencies. SEC Chairman Gary Gensler cautioned investors about the various risks associated with Bitcoin and crypto-linked products.
Other commissioners voiced concerns about the approval of these funds. Commissioner Caroline Crenshaw expressed worry that these products might inundate the market and find their way into the retirement accounts of American households, who are ill-equipped to bear losses due to the prevalent fraud and manipulation in the spot Bitcoin markets.
This approval comes amid a turbulent couple of years for Bitcoin, which has seen its value plummet and the collapse of several crypto firms. Wednesday’s announcement is a beacon of hope for investors in the crypto market.
Regulatory greenlight had been expected for several months, with Bitcoin’s price soaring approximately 70% since October, fuelled by speculation over the broad adoption of Bitcoin ETFs boosting demand.
The price had dipped to a low of $16,000 in November 2022 following the bankruptcy of crypto exchange FTX but was trading at $46,500 post-SEC announcement.
Analysts at Standard Chartered suggested that these ETFs could attract between $50bn to $100bn this year, potentially driving Bitcoin’s price to as high as $100,000. Others estimate inflows closer to $55bn over five years.
However, some analysts are more reserved in their forecasts, suggesting that ETFs might actually bring stability to crypto prices by widening their user base and appeal.
Yet, there remains a general concern that the widespread use of crypto ETFs could inject excessive risk and volatility into American retirement portfolios, given Bitcoin’s reputation for unpredictable price swings.
Yiannis Giokas, senior director at Moody’s Analytics, warned of the unfamiliar investment risks that the notorious price volatility of Bitcoin could introduce to mainstream investors.
Additionally, the price of Ethereum, the second most popular cryptocurrency, has risen on speculations that fund managers will soon launch ETFs based around it.
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