April 23, 2024

A game-changer for cryptocurrency market

In a significant development for the cryptocurrency industry, the U.S. securities regulator has granted approval for the first-ever U.S.-listed exchange-traded funds (ETFs) to track Bitcoin. This decision marks a milestone for the world’s largest cryptocurrency.

The news came after a turbulent 24 hours for Bitcoin, starting with a tweet from the Securities and Exchange Commission (SEC) account announcing the approval of the long-awaited ETFs. As a result, the price of Bitcoin surged by over $1,000. However, the SEC later clarified that their account had been compromised, and the tweet was unauthorized. Nonetheless, the SEC confirmed the approval of the ETFs, stating its ongoing skepticism towards cryptocurrencies.

What does this approval entail?

The SEC has given the green light to 11 Bitcoin ETFs in the U.S., providing an opportunity for numerous new investors who prefer not to engage in the complexities of directly purchasing Bitcoin. An ETF offers a convenient way to invest in assets or a group of assets without the need to acquire the assets themselves. For instance, the SPDR Gold Shares ETF enables individuals to invest in gold without worrying about storage or protection.

ETFs can be easily traded on stock exchanges, further enhancing their accessibility. Previously, individuals interested in owning Bitcoin would have to set up a digital wallet or register with a cryptocurrency trading platform like Coinbase or Binance.

Advocates of cryptocurrencies anticipate that this development will drive the once-niche and tech-savvy realm of the internet further into the financial mainstream.

The approval of these ETFs represents a significant victory for prominent fund managers like BlackRock, Fidelity Investments, and Invesco, who will oversee these funds and have actively lobbied for SEC approval. Some of these products are expected to begin trading as early as Thursday, sparking intense competition for market share.

What is the SEC’s stance on this matter?

Despite granting approval for the new ETFs, the SEC maintains its skepticism towards cryptocurrencies and clarifies that its decision does not imply endorsement or approval of Bitcoin. Gary Gensler, chairman of the agency, prompted investors to remain cautious about the numerous risks associated with Bitcoin and crypto-linked products.

Other commissioners expressed concern regarding the approval of these funds. Commissioner Caroline Crenshaw dissented, expressing worry that these products could flood the market and end up in the retirement accounts of vulnerable U.S. households, which may be ill-equipped to handle potential losses resulting from fraud and manipulation prevalent in the spot Bitcoin markets.

Read more: Bitcoin hits milestone high, soaring past $34,000 on optimism for ETF

Bitcoin ETFs approval

What implications does this have for the price of Bitcoin?

After nearly two years of volatility, including significant price declines and the collapse of several crypto firms, the latest announcement brings positive news to many crypto investors. The regulatory approval, which had been anticipated for months, has fueled speculation among crypto investors that the widespread use of Bitcoin ETFs will drive up demand for the cryptocurrency.

Since October, the price of Bitcoin has surged by approximately 70 percent. In the hours following the SEC announcement, it was trading at $46,500, having previously dropped as low as $16,000 in November 2022 following the bankruptcy of the crypto exchange FTX.

Analysts from Standard Chartered predict that the ETFs could attract $50 billion to $100 billion in investments this year alone, potentially driving the price of Bitcoin as high as $100,000.

Other projections suggest inflows of around $55 billion over five years. Some analysts adopt a more cautious approach, suggesting that ETFs could contribute to the stabilization of crypto prices by expanding their usage and attracting a wider audience.

Nevertheless, concerns persist that the widespread adoption of crypto ETFs may introduce excessive risk and volatility into Americans’ retirement accounts, given Bitcoin’s known tendency to experience significant and unexplained price fluctuations.

Yiannis Giokas, senior director of Moody’s Analytics, remarks that “the notorious price volatility of Bitcoin… could expose mainstream investors to a less familiar spectrum of investment risks.” The price of Ethereum, the second-most popular cryptocurrency, has also risen amid speculation that fund managers will develop ETFs centered around it.

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