A collection of nearly a dozen new bitcoin funds commenced trading in U.S. markets for the first time on Thursday, providing enhanced access to the cryptocurrency for everyday investors.
The newly approved exchange-traded funds (ETFs) from asset managers like Blackrock, Invesco, and Fidelity offer investors an asset closely mirroring the price of bitcoin. While the Securities and Exchange Commission (SEC) granted approval to these 11 funds, it is seen as a cautious move, with Chairman Gary Gensler emphasizing the need for more regulation and investor protections in the cryptocurrency space.
This wave of approvals is considered a victory for both fund managers and the cryptocurrency industry, which has faced challenges and turmoil over the past two years, including the notable failure of FTX in November 2022. The SEC’s lukewarm approval, accompanied by Gensler’s warnings, highlights the agency’s concerns about the risks associated with bitcoin and related products.
Despite the cautious approval, the price of bitcoin has surged approximately 70% since October on the belief that bitcoin ETFs will drive increased demand for the cryptocurrency. The positive impact on prices has raised expectations that ETFs may help stabilize crypto prices by broadening their use and potential audience.
Bitcoin’s price rose by 2% in early trading on Thursday, and the trading of the newly approved ETFs showed mixed results. While some analysts see ETFs as a means to attract new investors and stabilize crypto prices, others express concerns that the notorious price volatility of bitcoin could expose mainstream investors to unfamiliar investment risks.
Here are some key points to consider about bitcoin ETFs:
1. What’s the Excitement Over a Bitcoin ETF?
- ETFs provide an easy way for investors to gain exposure to an asset, such as bitcoin, without directly owning it.
- Bitcoin ETFs are expected to attract new investors who may find traditional crypto ownership processes complicated.
2. How Would the ETF Work?
- Bitcoin ETFs, like the SPDR Gold Shares ETF for gold, allow investors to gain exposure to bitcoin’s price without owning the cryptocurrency itself.
- The Bitcoin Strategy ETF (BITO) has existed since 2021, but it holds bitcoin-related futures rather than the cryptocurrency.
3. How Many Bitcoin ETFs Could There Be?
- The SEC approved 11 bitcoin ETFs, but more are expected to apply for trading in the coming months.
4. What Are the Disadvantages of an ETF?
- Longtime crypto enthusiasts may object to Wall Street becoming an intermediary between investors and cryptocurrencies.
- ETFs charge fees, although they are relatively low compared to the overall financial industry.
5. When Is It Better to Hold Actual Bitcoin?
- An ETF does not provide actual cryptocurrency for investors to use, and it lacks the anonymity associated with crypto ownership.
6. What Concerns Should Investors Have?
- Investors should be cautious due to the notorious volatility in the price of bitcoin.
- Cryptocurrencies remain subject to market manipulation, scams, and regulatory uncertainties.
While the SEC’s approval marks a significant development, the cryptocurrency industry continues to face challenges, and investors need to be mindful of the risks associated with the volatile nature of bitcoin.
