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Federal regulators on Wednesday approved a new financial product to track the price of Bitcoin. This is a milestone for the cryptocurrency industry, and proponents hope to see more investment in the technology.
The Securities and Exchange Commission said financial companies offering so-called exchange-traded funds tied to Bitcoin could be an easier way for people to invest in digital assets on traditional platforms like Nasdaq. 11 applications were approved. Some of the world’s biggest financial firms, including asset managers BlackRock and Fidelity, have been approved to offer products known as ETFs, which could begin trading as early as Thursday.
The approval was hailed as a sign that mainstream financial institutions remain open to using digital currencies, even after 18 months of market crashes and large-scale bankruptcies. Since the fall, Bitcoin prices have soared by more than 60%. That’s because traders bet that SEC support for new crypto products would lend regulatory legitimacy to the industry and attract new investment from professional asset managers and amateur traders.
Bitcoin prices soared on Tuesday after a post was posted on the SEC’s official X account announcing the ETF’s approval, but after SEC Chairman Gary Gensler announced that the agency’s account had been hacked. fell rapidly.
The industry had no choice but to wait until the SEC cleared the product in a regulatory filing Wednesday. The long-awaited announcement introduces a pillar of the mainstream financial system into the experimental world of cryptocurrencies.
ETFs, widely offered by financial companies such as Charles Schwab and Vanguard, are baskets of assets divided into stocks that can be bought and sold on the open market, making them popular among asset managers who manage trillions of dollars in capital. It is a form of investment.
Rather than storing their Bitcoin in an online wallet, investors in a Bitcoin ETF will own shares in a fund that includes the digital currency. Investors will be able to gain exposure to the cryptocurrency market without the risks and inconveniences historically associated with this technology.
“This is a bridge to traditional financial markets,” said James Seifert, a Bloomberg analyst who tracks ETFs. “I think over the long term you’ll see some inflows.”
Cryptocurrency advocates have been pushing for the introduction of Bitcoin ETFs for years in hopes of accelerating the adoption of cryptocurrencies more broadly. In 2021, the SEC approved a fund that tracks the future price of Bitcoin without owning the currency itself. However, the agency argued that funds containing Bitcoin pose a significant risk to consumers, citing market manipulation in the virtual currency industry.
These claims failed in court. In August, the SEC lost a legal battle with crypto asset management firm Grayscale Investments, one of the companies that had applied to offer the product, paving the way for a Bitcoin ETF.
Bitcoin’s price quickly soared, reaching nearly $47,000, its highest level since a spate of bankruptcies sent the industry into meltdown in 2022. There was speculation on social media about the timing of SEC approval. Tuesday’s fake announcement led to 15 minutes of trading. Celebration before Mr. Gensler intervenes.Official X account for platform safety resources Said The agency had not enabled two-factor authentication, a common digital security tool to protect accounts.
Expectations for the new crypto product have been building for months. In November, BlackRock sparked further excitement by filing paperwork to create an ETF that would track the price of Ether, the second most valuable cryptocurrency after Bitcoin.
But skeptics argued that the new product does not solve any of the fundamental problems with cryptocurrencies. Several major crypto companies have declared bankruptcy in 2022, exposing the vulnerabilities of the digital asset industry. Critics argued that many of the companies offered little practicality.
The nonprofit advocacy group Better Markets said in an open letter last week that approving a Bitcoin ETF would “almost certainly be a historic mistake that will result in significant harm to investors.” Other analysts argue that these products will not push crypto prices much higher.
The growing profile of companies like BlackRock in the crypto world also contradicts the rebellious industry’s early promise to provide an alternative to mainstream financial giants.
“There’s just too much cynicism and hypocrisy,” said John Stark, a former SEC official and longtime critic of cryptocurrencies.
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