This was the first time the Securities and Exchange Commission approved an exchange-traded fund that contained bitcoin, but the Commission stressed that its decision does not mean it endorses or approves Bitcoin, but that it remains deeply sceptical about cryptocurrencies.
Despite a deadline for just one application, the SEC stated that it had given the green light to 11 exchange-traded funds for Bitcoin. The agency said that this would provide a level playing field and competitiveness for all.
As part of its approval process, the government has approved spot Bitcoin exchange-traded funds (ETFs), which can be bought by pension funds and ordinary investors. In the wake of the announcement by the head of the Securities and Exchange Commission, cryptocurrency fans reacted with glee - and memes about becoming rich.
However, the warning was tempered by an explanation of the risks associated with the asset. A previous attempt for approval by the US financial watchdog had been repeatedly rebuffed due to concerns about potential fraud and manipulation, as well as the lack of any transparency.
ETFs are an excellent way to invest in something or a group of things, like gold or junk bonds, without actually owning those items themselves.
The ETFs trade much like stocks, which allows them to be purchased and sold throughout the day, as opposed to traditional mutual funds. Since Bitcoin was launched, anyone who wanted one had to purchase it. That means either that one would have to learn about cold wallets or that one would have to open an account on a crypto-trading platform like Coinbase or Binance, which is not an easy task to learn about.
Many new investors who are not inclined to go through all the extra steps to invest in Bitcoin could benefit from a spot Bitcoin ETF. In anticipation of the SEC approval, Bitcoin prices have soared, with the price trading at $45,280 on Wednesday, up from around $27,000 at the beginning of the month.
A crypto exchange called FTX filed for bankruptcy in November 2022, resulting in a price drop of $16,000 in November 2022.
A major concern of investors who are considering buying an ETF in this area is the volatility of bitcoin's price.
Even though Bitcoin has not caught on as a replacement for fiat currency in November 2021, it soared to nearly $68,000 in November. The bitcoin price dropped below $20,000 one year after investors retreated from riskier assets and several company scandals eroded confidence in the crypto market.
Although regulators and law enforcement are cracking down on some bad actors in the crypto industry, such as Sam Bankman-Fried of FTX, the industry still feels like it is a Wild West. During this week's hack on the SEC's X account, in which a fake tweet claimed ETFs were approved, prices skyrocketed and raised questions about the SEC's ability to protect itself from scammers manipulating the market and whether they would be able to stop them.
ETFs linked to Bitcoin can change in price rapidly and without warning or explanation, so investors will have to weigh that up before purchasing a digital coin ETF. But ETFs are generally sold as high-risk, high-reward products anyway. In addition, there is also the possibility of cybercrime which has taken place in the past few years.
Almost every crypto company has been wiped out of the cash market overnight as a result of huge and costly attacks on bitcoins and other cryptocurrencies. When Blackrock, for instance, becomes a major Bitcoin holder, their cyber-security will be tested in ways they are not accustomed to due to the complexity of the blockchain.
In addition to the negative environmental impact, there is also a cost associated with it. It is no secret that the Bitcoin blockchain relies on thousands of powerful computers all around the world to process transactions and create coins. It is expected that the use of renewable energy will increase going forward, but it remains to be seen how investment companies will process the potential costs associated with Bitcoin against buyers concerned about compliance with environmental, social, and corporate governance (ESG) regulations.
