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The US Securities and Exchange Commission has just approved the exit of the first batch of spot Bitcoin exchange-traded funds from the US.
The agency on Wednesday gave the green light to sponsors of 10 ETFs, including BlackRock, Invesco, Fidelity, Grayscale and Ark Invest, paving the way for those funds to begin trading as soon as this week.
The move was largely expected, even after the hurdle of a social media hack. A false statement saying the regulator had approved a bitcoin exchange-traded fund was posted Tuesday on the SEC's social media account at X, formerly known as Twitter. The agency later explained that its account had been hacked.
Wednesday's actual approval represents a huge step for the cryptocurrency, as it will give investors increased ways to gain exposure to the token — not just from holding it directly, but through existing financial instruments that are traded on a regulated exchange.
But what exactly does all this mean, and how does it affect investors? CNBC breaks down everything you need to know about the Bitcoin ETF's completion.
An ETF is an investment fund that tracks the performance of an underlying asset. This could be stocks, a basket of currencies, a precious metal like gold, or in this case Bitcoin.
It is a way for investors to learn about the value of the underlying asset without owning it directly.
ETFs are traded on traditional exchanges, and their value should rise when the price of the underlying asset rises, or fall if it falls.
As cryptocurrency investors look to assess the market impact of a Bitcoin ETF, many are comparing Wednesday's news to the SPDR Gold Shares ETF — the first-ever spot gold ETF — which got the green light in 2004.
The total market capitalization of the gold market was about $1 to $2 trillion before the gold ETF was approved, and that amount later ballooned to $16 trillion within a few years afterward, according to Vijay Aiyar, vice president of international markets for the exchange. Indian cryptocurrency CoinDCX.
“Bitcoin adoption will be much faster and greater than that,” Ayyar told CNBC via Whatsapp.
Aiyar said the bitcoin and cryptocurrency story will “accelerate” in 2024 now that approval of a bitcoin exchange-traded fund may interest retail investors who were previously sitting on the sidelines.
The Bitcoin ETF opens up the public to people and institutions that can buy and sell Bitcoin to those with little experience trading cryptocurrencies.
“This ETF has two main impacts: increasing distribution in the US (moderate impact, as ETFs have existed outside the US for years) and increasing the credibility of cryptocurrencies as an ‘asset class’ (very high impact),” said Kevin De Batol, co-founder. and CEO of cryptocurrency liquidity provider Keyrock, told CNBC.
“There is now a Bitcoin ETF in the US, and Bitcoin is no longer considered shady or disreputable. This dramatically changes the perception of the general public.”
This also means that Bitcoin could start to appear in major wallets, where many retail investors can gain exposure.
Major institutional fund managers can add it to their investment funds. Retirement planners can now include it in employer-sponsored 401(k) plans.
This makes owning Bitcoin much easier, as you don't have to rely on a weak piece of hardware for storage. Investors do not need to address the difference between “hot” and “cold” wallets, which store digital tokens.
Instead, they can only buy ETFs from one of several regulated asset managers who are set to start working with their own ETFs.
“The approval of the Bitcoin ETF has major implications for US investors because they can now hold cryptocurrencies in their brokerage account, which they could not do before,” said Timo Lehes, co-founder of blockchain firm Swa.sm markets, to CNBC.
“This gives the green light to diversify the investment portfolio in assets, and we expect significant capital flows into the market as a result.”
A Bitcoin ETF can bring exposure to cryptocurrencies to a more diverse group of coin holders with varying levels of size and market experience.
Aiyar said Wednesday's approvals “represent an important moment in the maturity of the crypto asset class.”.“
“Retail collectives now have an easy and secure way to gain exposure to the asset class through their brokerage account,” Aiyar told CNBC.
“ETF approval also provides a trusted stamp of approval for large institutions and market participants who have been waiting for an easier way to access the asset class rather than purchasing cryptocurrencies directly, which always carries inherent price and custodial risks.”
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