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SEC approves new bitcoin funds
NEW YORK (AP) — The Securities and Exchange Commission on Wednesday reluctantly approved the first exchange-traded funds to hold bitcoin, saying it is still deeply skeptical of cryptocurrencies and that its decision does not mean it approves or supports bitcoin.
The SEC said it had given the green light to 11 bitcoin exchange-traded funds, even though it had only one deadline for an application. The agency said this would ensure competition and a “level playing field.”
Bitcoin ETFs could open the cryptocurrency door to many new investors who don’t want to take the extra steps needed to buy real bitcoin.
It’s a major victory for Wall Street, especially trillion-dollar fund managers like BlackRock, Fidelity Investments and Invesco who have lobbied for the SEC to approve their requests. It’s also a win for the cryptocurrency industry, which needed a win after nearly two years of turmoil that led to the bankruptcy of several cryptocurrency companies. especially FTX in November 2022.
SEC approval, however, was lukewarm at best. Gary Gensler, the agency’s president, has repeatedly said that cryptocurrencies need more regulation and investor protection.
“Investors should remain cautious regarding the myriad risks associated with bitcoin and products whose value is tied to cryptocurrencies,” Gensler said.
Other commissioners expressed concern that the SEC agreed to approve the funds.
“I am concerned that these products will flood the markets and end up directly in the retirement accounts of U.S. families who can least afford to lose their savings due to the fraud and manipulation that appears prevalent in the bitcoin spot markets,” said Commissioner Caroline Crenshaw in his speech. dissent.
An Exchange Traded Fund is a simple way to invest in assets or a group of assets, such as gold, junk bonds or bitcoin, without having to purchase the assets themselves directly. Cryptocurrency advocates hope the development will push the once niche and nerdy corner of the Internet even further into the financial mainstream. ETFs can be purchased quickly with any brokerage and traded on an exchange such as the Nasdaq Stock Market.
The regulatory green light has been given waited for several months and the price of bitcoin increased around 70% since October as cryptocurrency investors speculated that the widespread use of bitcoin ETFs would increase demand for the cryptocurrency. The price of etherium, the second most popular cryptocurrency, has also risen amid speculation that fund managers will create ETFs around it.
Some analysts believe ETFs can help stabilize cryptocurrency prices by broadening their use and potential audience. But many remain concerned that widespread use of crypto ETFs could lead to excessive risk and volatility in Americans’ retirement accounts.
“Bitcoin’s notorious price volatility, as well as its fluctuating values relative to stablecoins and other cryptocurrencies, could expose traditional investors to a less familiar spectrum of investment risks,” said Yiannis Giokas, senior director at Moody’s Analytics.
In a perhaps appropriate twist for the unpredictable cryptocurrency industry, a fake tweet from the Securities and Exchange Commission account X said on Tuesday that trading in bitcoin ETFs had been approved but the agency had not issued any approvals.
Here are some things to know about bitcoin ETFs.
WHY ALL THIS EMOTION ABOUT A BITCOIN ETF?
An Exchange Traded Fund, or ETF, is a simple way to invest in something or a group of things, like gold or junk bonds, without having to buy the things themselves. Unlike traditional mutual funds, ETFs trade like stocks, meaning they can be bought and sold throughout the day.
Since the birth of bitcoin, anyone who wanted to own one would have had to buy it. This in turn would mean having to learn what a cold wallet is or having to open an account on a cryptocurrency trading platform like Coinbase or Binance.
A spot Bitcoin ETF could open the door to many new investors who don’t want to take any further steps.
The price of bitcoin has already skyrocketed in anticipation of SEC approval, bitcoin traded at $45,890 on Wednesday, up from around $27,000 in mid-October. The price had dropped as low as $16,000 in November 2022 following the bankruptcy of cryptocurrency exchange FTX.
HOW WOULD THE ETF WORK?
The Bitcoin Strategy ETF (BITO) has been trading since 2021, but it holds futures related to bitcoin, not the cryptocurrency itself.
The new bitcoin ETF will work like the SPDR Gold Shares ETF (GLD), which allows anyone to do so invest in gold without having to find a place to store a bar or having to protect it. It’s the same reason some people invest in the SPDR Bloomberg High Yield Bond ETF (JNK), which allows investors to simply buy one thing instead of the more than 1,000 low-quality bonds that make up the index.
HOW MANY BITCOIN ETFS COULD THERE BE?
The SEC said it has given approval to 11 ETFs, but more are certain to apply for trading in the coming months.
WHAT ARE THE DISADVANTAGES OF AN ETF?
Longtime cryptocurrency fans might object. Cryptocurrencies like bitcoin were created in part due to distrust of the traditional financial system. Wall Street would become an intermediary between investors and cryptocurrency in the case of ETFs.
ETFs also charge fees, although they tend to be relatively low compared to the financial industry as a whole. These fees are shown through the so-called expense ratio, which indicates how much of a fund’s assets the ETF will use each year to cover its costs.
WHEN IS IT BEST TO HOLD ACTUAL BITCOIN?
An ETF won’t put the actual cryptocurrency into investors’ accounts, meaning they won’t be able to use it. Additionally, an ETF would not provide investors with the same anonymity that cryptocurrencies offer, one of the biggest draws for many cryptocurrency investors.
WHAT CONCERNS SHOULD INVESTORS HAVE?
The biggest concern for an investor in one of these ETFs is the infamous volatility of bitcoin’s price.
Despite failing to gain a foothold as a replacement for fiat, or paper, currencies, bitcoin rose to nearly $68,000 in November 2021. A year later it fell below $20,000 as investors generally shunned riskier assets and a series of corporate failures and scandals have shaken confidence in the cryptocurrency industry.
Even as regulators and law enforcement crack down on some of cryptocurrency’s bad actors, like FTX’s Sam Bankman-Fried, the industry still has a modern “Wild West” feel. The hack of SEC Account X raises questions about both the scammers’ ability to manipulate the price of bitcoin and the SEC’s ability to stop them.