The Securities and Exchange Commission on Wednesday approved Wall Street-backed bitcoin exchange-traded funds, or ETFs, in a major regulatory move that will make it easier for ordinary investors to park their money in the digital currency.
The agency gave the green light to several financial firms to offer spot bitcoin ETFs, including asset management giants such as BlackRock, Fidelity Investments and Franklin Templeton that cater to retail investors.
Until now, only bitcoin futures ETFs had SEC approval. CoinDesk’s Bitcoin Price Index shows that bitcoin prices have increased since ETFs received SEC approval, more than doubling over the past year. Cryptocurrency prices have already risen 61% since October on expectations that the agency plans to approve spot ETF applications, CoinDesk reports.
Here’s what to know about the Spot Bitcoin ETF
What is an ETF?
ETFs are pooled investments like a mutual fund, but traded on stock exchanges like stocks or bonds and that track a specific index, sector or asset class, such as gold. Unlike traditional mutual funds, they can be bought and sold throughout the day.
Spot Bitcoin ETFs allow investors to gain direct exposure to Bitcoin without actually holding it. Unlike regular Bitcoin ETFs, in which Bitcoin futures contracts are the underlying asset, Bitcoin Spots are the underlying asset of Bitcoin ETFs. Each spot bitcoin ETF is managed by a firm that issues shares of its own bitcoin holdings purchased by other holders or through an official cryptocurrency exchange. Shares are listed on a traditional stock exchange.
Which ETF applications were approved?
The SEC has approved the following 11 spot bitcoin ETFs: BlackRock’s iShares Bitcoin Trust, Grayscale Bitcoin Trust, ARK 21Shares Bitcoin ETF, Bitwise Bitcoin ETP Trust, WisdomTree Bitcoin Fund, Fidelity Wise Origin Bitcoin Trust, VanEck Bitcoin Trust, Invesco Galaxy Bitcoin ETF, Valkyrie Bitcoin Fund, Hashdex Bitcoin ETF and Franklin Bitcoin ETF.
Spot Bitcoin ETF vs Buying Bitcoin: What’s the Difference?
Investing in a spot bitcoin ETF differs from buying bitcoins directly in a few ways.
First, investors who put money into a bitcoin ETF don’t directly own any bitcoin, Swan Bitcoin CEO Cory Klippsten told CBS MoneyWatch. Second, financial companies will charge fees for trading and managing Bitcoin ETFs. In contrast, people who buy bitcoins pay transaction fees directly, but there are no costs for managing the investment.
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There are some advantages to holding Bitcoin through an ETF. For example, investors can hold their Bitcoin ETFs in the same brokerage account and track them as their other investments.
What impact could the SEC approve of a Bitcoin ETF?
Investors are betting that the rise of spot bitcoin ETFs will drive billions of dollars into the digital currency by making investing easier and less intimidating.
Companies like BlackRock and Fidelity are household names in financial services, and their move to enter the sector brings bitcoin into the mainstream as an investment category, while lending legitimacy to the shadowy and highly volatile crypto industry.
“A spot Bitcoin ETF marks the end of crypto as a ‘novel’ asset class and the beginning of a world where it can be part of every portfolio,” said Nathan McCauley, CEO of Anchorage Digital, a crypto platform provider for financial firms.
Experts say that as the demand for Bitcoin increases, so will its price, leading to even more investment and interest in the crypto. Bitcoin aims to promote investment as well as eliminate fraud and introduce new products from reputable financial players as a way to invest, pay and trade crypto in general. can speed up the passage of sensible regulations.
According to Rajeev Bamra, senior vice president of digital finance at Moody’s Investors Service, strengthening the regulatory framework for crypto is critical.
“Whether this trend will hold depends on the trajectory of global monetary policymaking as well as the availability of cryptocurrencies to institutional investors through products that meet regulatory standards, ensuring their safety and security,” he said.
