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It just got a lot more convenient for everyday investors to invest in cryptocurrencies. In a long-anticipated move, the Securities Exchange Commission today granted approval to 11 financial institutions to begin offering spot bitcoin exchange-traded funds.
ETFs are similar to mutual funds, but are traded on a stock exchange in real time. Their value is linked to an underlying asset such as gold or a group of stocks--or the current price of bitcoin, in the case of the newly approved offerings from traditional asset managers including Fidelity, BlackRock, and Invesco as well as crypto asset managers such as Bitwise.
"Your shares are like receipts that are linked to actual bitcoin held with the custodian," says Eric Balchunas, an analyst at Bloomberg Intelligence. Many of the financial institutions are holding their bitcoin with crypto exchange Coinbase, although Fidelity will act as its own custodian.
For the crypto-curious, the ETFs offer a way to dabble in investing in bitcoin through their existing brokerage accounts. "It's a great entry point," says Shirin Bucknam, founder of the Brooklyn-based education platform Crypto Witch Club.
The new offerings could chip away at the business of some crypto exchanges, which often charge high commissions when you buy or sell. The issuers of the ETFs, in contrast, are competing to offer the lowest fees, according to Reuters.
With the ETFs, investors also don't have to worry about setting up cryptocurrency wallets, navigating an unfamiliar exchange, or learning about new security protocols--and the funds will have more regulatory oversight than other crypto investments, which generally exist in a regulatory gray area at the moment.
Crypto purists argue that these funds are "paper bitcoin" and not the same as owning real bitcoin through a decentralized network and in a wallet you control--say, the difference between holding physical bars of gold versus a fund backed by gold.
Balchunas believes the main audience for these ETFs will be "rich Boomers" who want to get a little exposure to cryptocurrency--advisers may also lean on them in hopes of seeming modern to the children of Boomers who will eventually inherit their wealth.
Bitcoin hit a high of nearly $65,000 in April 2021. In late 2022, the price of bitcoin dropped to about $16,000 after news of the collapse of FTX, the cryptocurrency exchange run by Sam Bankman-Fried. The price has climbed since then, in part on expectations that the ETFs would be approved, settling at about $45,000 in recent days.
"Bitcoin can be insanely volatile for short-term investors," warns Bucknam. "Hold onto your avocado toast." On January 3, the value dropped by about 10 percent following rumors the ETFs would not be approved. Then yesterday, the SEC's account on the social media platform X was compromised. An unauthorized post appeared saying the ETFs had been approved, causing prices to spike. Within the hour, prices tumbled when the post was revealed to be fake.
Balchunas predicts that within five years, bitcoin ETFs could total about $100 billion, or about 1 percent of all ETF assets. In the shorter term, they could create more visibility and legitimacy for the industry after years of bad press and legal actions, and perhaps even spur renewed interest in Web3 companies.
"We are in year 15 of bitcoin. I think 50 years from now, we'll see the six years from 2017 through 2023 as an ugly aberration," says Cory Klippsten, founder and CEO of Calabasas, California-based investment platform Swan Bitcoin. "The marketing blitz from the ETF companies is going to have a massive positive spillover effect for every company in the bitcoin industry."
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The SEC Just Made It Easier to Invest in Bitcoin--Sort Of
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11.01.2024
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Feeling the Pressure to Raise Salaries? You're Not Alone
It just got a lot more convenient for everyday investors to invest in cryptocurrencies. In a long-anticipated move, the Securities Exchange Commission today granted approval to 11 financial institutions to begin offering spot bitcoin exchange-traded funds.
ETFs are similar to mutual funds, but are traded on a stock exchange in real time. Their value is linked to an underlying asset such as gold or a group of stocks--or the current price of bitcoin, in the case of the newly approved offerings from traditional asset managers including Fidelity, BlackRock, and Invesco as well........
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