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The US Securities and Exchange Commission has just approved the first-ever batch of exchange-traded spot bitcoin funds originating in 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 the funds to start trading as early as this week.
The move was largely expected, even after the hiccups of social media hackers. A false statement that the regulator had approved a bitcoin ETF was posted on Tuesday on the SEC’s social media account on X, formerly known as Twitter. The agency later clarified that her account had been compromised.
The actual approval on Wednesday marked a massive step for the cryptocurrency, as it will give investors more ways to gain exposure to the token — not just by holding it directly, but through existing financial instruments that trade on a regulated stock exchange.
But what exactly does it all mean and how does it affect investors? CNBC goes over everything you need to know about the Bitcoin ETF milestone.
What is a Bitcoin ETF?
An ETF is an investment fund that tracks the performance of an underlying asset. It can be a stock, a basket of currencies, a precious metal like gold, or in this case Bitcoin.
It is a way for investors to gain exposure to the value of the underlying asset without directly owning it.
ETFs are traded on traditional exchanges and should rise in value when the underlying asset rises, or fall when it falls.
As crypto investors weigh what impact a bitcoin ETF could have on the market, many are comparing Wednesday’s news to the SPDR Gold Shares ETF — the first ever spot gold ETF — that went green in 2004.
The total market capitalization of gold was around $1 trillion to $2 trillion before the approval of the gold ETF, which subsequently increased to $16 trillion a few years later, according to Vijay Ayyar, vice president of international markets for Indian crypto exchange CoinDCX.
“Bitcoin adoption is going to be much faster and bigger,” Ayyar told CNBC via Whatsapp.
Ayyar said the bitcoin and cryptocurrency story will now “accelerate” in 2024 as the approval of a spot bitcoin ETF could spark interest from retail investors who previously sat on the sidelines.
What does a Bitcoin ETF mean for investors?
Bitcoin ETFs open up an audience of people and institutions who can buy and sell Bitcoin to those with little experience in cryptocurrency trading.
“This ETF has two main impacts: increased distribution in the US (moderate impact as ETFs have existed outside the US for years) and increased credibility of crypto as an ‘asset class’ (very large impact),” Kevin de Patoul, co-founder and CEO of the crypto-liquidity provider Keyrock, told CNBC.
“There is now a US spot bitcoin ETF and bitcoin is no longer seen as shady or infamous. This significantly changes the perception of the mainstream public.”
It also means that bitcoins could begin to appear in mainstream portfolios, where many more small investors could appear.
Large institutional fund managers can add it to their mutual funds. Retirement planners can now include it in employer-sponsored 401(k) plans.
This makes it much easier to own bitcoins because you don’t have to rely on a vulnerable piece of hardware to store them. Investors don’t have to deal with the difference between “hot” and “cold” wallets that store digital tokens.
Instead, they can buy an ETF from one of the many regulated asset managers that are set up to run their own ETFs.
“The approval of the Bitcoin ETF has huge implications for US investors, as they can now hold cryptocurrencies in their brokerage account, which they could not do before,” Timo Lehes, co-founder of blockchain firm Swa.yearm Markets, he told CNBC.
“This gives green diversification to the portfolio into assets and as a result we expect a large influx of capital into the market.”
A Bitcoin ETF could bring cryptocurrency exposure to a more diverse group of holders with varying sizes and market experience.
Ayyar said Wednesday’s approval “marks a pivotal moment in the maturity of the crypto-asset class.“
“Mass retail now has an easy and safe way to gain exposure to an asset class through their brokerage account,” Ayyar told CNBC.
“The approval of the ETF 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 directly buying cryptocurrencies, which always carry price and custody risks.”