The US securities regulator has approved the first US-listed exchange traded funds (ETF) to track bitcoin, in a watershed moment for the world’s largest cryptocurrency and the broader crypto industry.
The announcement came at the end of a tumultuous 24 hours for the popular cryptocurrency, which saw a tweet sent from the account of the Securities and Exchange Commission (SEC) announcing the approval of the long-awaited ETFs on Tuesday, leading the price of bitcoin to spike by more than $1,000. Soon after, the SEC said its account had been “compromised” and that the tweet was “unauthorised”.
By Wednesday however, the SEC had approved the ETFs – this time for real – adding that it remained sceptical about cryptocurrencies.
What has been approved?
The SEC has given the green light to 11 ETFs for bitcoin in the US, opening the door to cryptocurrencies to many new investors who don’t want to take the extra steps involved in buying actual bitcoin.
An ETF is an easy way to invest in assets or a group of assets without having to directly buy the assets themselves. For example, the SPDR Gold Shares ETF allows anyone to invest in gold without having to find a place to store a bar or protect it.
ETFs can also be easily traded on stock exchanges.
Since bitcoin’s inception, anyone wanting to own one would either have to adopt a digital wallet or open an account at a crypto trading platform like Coinbase or Binance. Cryptocurrency advocates say the development will thrust the once niche and nerdy corner of the internet even further into the financial mainstream.
The decision to approve the ETFs is a major win for huge fund managers like BlackRock, Fidelity Investments and Invesco who will manage the funds – and have pushed hard to get the SEC to approve them.
Some products are expected to begin trading as early as Thursday, kicking off a fierce competition for market share.
What has the SEC said?
Despite approving the new ETFs, the SEC said it was still deeply skeptical about cryptocurrencies and that its decision did not mean it approves or endorses bitcoin.
“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto,” said Gary Gensler, the agency’s chairman.
Other commissioners expressed alarm that the SEC agreed to approve the funds.
“I am concerned that these products will flood the markets and land squarely in the retirement accounts of US households who can least afford to lose their savings to the fraud and manipulation that appears prevalent in the spot bitcoin markets,” Commissioner Caroline Crenshaw said in her dissent.
What does this mean for the price of bitcoin?
After nearly two years of turmoil that has seen the price of bitcoin plummet and the failure of several crypto firms, Wednesday’s announcement will come as good news to many investors in the crypto market.
The greenlight from regulators had been anticipated for several months and the price of bitcoin has jumped about 70% since October as crypto investors speculated the broad use of bitcoin ETFs would drive up demand for the cryptocurrency.
The price had sunk as low as $16,000 in November 2022 after the bankruptcy of the crypto exchange FTX. It was trading at $46,500 in the hours after the SEC announcement.
Standard Chartered analysts this week said the ETFs could draw $50bn to $100bn this year alone, potentially driving the price of bitcoin as high as $100,000. Others have said inflows will be closer to $55bn over five years.
Other analysts have been more cautious in their predictions, saying that ETFs may actually help stabilise crypto prices by broadening their use and potential audience.
Most, however, remain concerned that the broad use of crypto ETFs could put too much risk and volatility into Americans’ retirement accounts – the price of bitcoin is known to fluctuate wildly, often without warning or explanation.
“The notorious price volatility of bitcoin … could expose mainstream investors to a less familiar spectrum of investment risks,” said Yiannis Giokas, senior director of Moody’s Analytics.
The price of ethereum, the second-most popular cryptocurrency, has also risen on speculation that fund managers will create ETFs around it.
Reuters and the Associated Press contributed to this report
