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NEW YORK — The Securities and Exchange Commission on Wednesday reluctantly approved the first exchange-traded fund (ETF) to hold Bitcoin, but the commission remains highly skeptical of cryptocurrencies and its decision It does not imply an endorsement or endorsement of the coin.
The SEC announced it had given the green light to 11 Bitcoin exchange-traded funds, even though only one had a filing deadline. The agency said it would provide competition and a “level playing field.”
Bitcoin ETFs could open the door to cryptocurrencies for many new investors who don’t want to take the additional steps involved in purchasing physical Bitcoin.
This is a big win for Wall Street, especially multitrillion-dollar fund managers like BlackRock, Fidelity Investments, and Invesco, which have worked hard to get their filings approved by the SEC. This is also a victory for the crypto industry, which was in need of a win after nearly two years of turmoil that led to the bankruptcy of several crypto companies, most notably FTX, in November 2022.
But SEC approval was lukewarm at best. The agency’s chairman, Gary Gensler, has repeatedly said that cryptocurrencies need more regulation and investor protection.
“Investors should remain vigilant about 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.
“These products will flood the market and flow straight into the retirement accounts of U.S. households who can minimally afford to lose their savings to the fraud and manipulation that appears to be rampant in the spot Bitcoin market. “We are concerned about this,” Commissioner Caroline Crenshaw wrote in her book. be against.
Exchange-traded funds are an easy way to invest in an asset or group of assets, such as gold, junk bonds, or Bitcoin, without purchasing the assets themselves directly. Cryptocurrency advocates hope the development will push this once niche, geeky corner of the internet further into the financial mainstream. ETFs are readily available for purchase at brokerages and can be traded on exchanges such as the Nasdaq Stock Market.
The regulatory green light has been expected for months, and Bitcoin prices have risen about 70% since October as crypto investors speculated that widespread use of Bitcoin ETFs would boost demand for the cryptocurrency. The price of Ethereum, the second most popular cryptocurrency, also rose on speculation that fund managers will create an ETF centered around Ethereum.
Some analysts believe that ETFs could help stabilize crypto prices by broadening their use and potential audience. But many remain concerned that widespread use of crypto ETFs could introduce too much risk and volatility into Americans’ retirement accounts.
“Bitcoin’s notorious price fluctuations and fluctuations in value relative to stablecoins and other cryptocurrencies expose mainstream investors to a range of investment risks with which they may be less familiar,” said Yanis Giokas, senior director at Moody’s Analytics. There is a possibility.”
In perhaps a fitting twist for the unpredictable crypto industry, a fake tweet from a Securities and Exchange Commission account on Tuesday claimed that trading in a Bitcoin ETF had been approved, but that the agency had not issued any approval. Stated.
Here are some things you need to know about Bitcoin ETFs.
Why am I so excited about Bitcoin ETFs?
Exchange-traded funds (ETFs) are an easy way to invest in something or a group of things, like gold or junk bonds, without buying the thing itself. Unlike traditional mutual funds, ETFs trade like stocks and can be bought and sold throughout the day.
Since Bitcoin’s inception, anyone who wanted to own Bitcoin had to buy it. This means you will either need to learn what a cold wallet is or open an account on a cryptocurrency trading platform like Coinbase or Binance.
Spot Bitcoin ETFs could open the door to many new investors who don’t want to take such additional steps.
Bitcoin prices have already soared in anticipation of SEC approval, with Bitcoin trading at $45,890 on Wednesday, up from about $27,000 in mid-October. Following the bankruptcy of virtual currency exchange FTX, the price had fallen to $16,000 in November 2022.
How do ETFs work?
The Bitcoin Strategy ETF (BITO) has already started trading in 2021, but it holds futures related to Bitcoin rather than the virtual currency itself.
The new Bitcoin ETF will perform similarly to the SPDR Gold Shares ETF (GLD) and will allow anyone to invest in gold without having to find a place to store or protect their bars. It’s the same reason some people invest in the SPDR Bloomberg High Yield Bond ETF (JNK). This allows an investor to simply buy one of his 1,000 or more low-grade bonds that make up the index.
How many Bitcoin ETFS can there be?
The SEC has announced that it has approved 11 ETFs, and it is certain that more will be filed for trading in the coming months.
What are the disadvantages of ETFs?
Longtime crypto fans may disagree. Cryptocurrencies like Bitcoin were created in part as a result of distrust in the traditional financial system. In the case of ETFs, Wall Street will act as an intermediary between investors and cryptocurrencies.
ETFs also have fees, but they tend to be relatively low compared to the financial industry as a whole. These fees are expressed through something called an expense ratio. The expense ratio tells you how much of the fund’s assets the ETF uses each year to cover its costs.
When is it better to hold physical Bitcoin?
ETFs do not deposit actual cryptocurrencies into investors’ accounts. This means that investors cannot use virtual currencies. ETFs also do not offer investors the anonymity of cryptocurrencies, which is one of the big attractions for many crypto investors.
What concerns should investors have?
The biggest concern for investors in these ETFs is the notorious volatility of Bitcoin prices.
Bitcoin soared to nearly $68,000 in November 2021, despite failing to take off as an alternative to fiat or paper currency. A year later, it fell below $20,000 as investors generally shunned riskier assets and a series of corporate explosions and scandals shook confidence in Bitcoin. Cryptocurrency industry.
Despite regulators and law enforcement cracking down on crypto bad actors like FTX’s Sam Bankman Fried, the industry still has a modern-day Wild West feel. The SEC’s hack of his X account raises questions about both the ability of fraudsters to manipulate Bitcoin’s price and the SEC’s own ability to thwart fraudsters.
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