But the move fell well short of a ringing endorsement. SEC Chair Gary Gensler cautioned, “Crypto asset securities may be marketed as new opportunities, but there are serious risks involved.”
Here’s what you need to know about bitcoin ETFs.
First introduced in 2009, bitcoin is the oldest cryptocurrency, a type of monetary asset that can be exchanged anonymously. Over the past decade, bitcoin has continued to be the most popular and stable cryptocurrency, rising to a peak of around $64,000 per coin in November 2021. After crashing along with other crypto assets in 2022, bitcoin has since rebounded. On Thursday morning, its value sat above $47,000 per coin, its price buoyed by the SEC’s announcement.
ETF stands for “exchange traded fund,” which is very much like a mutual fund but can be traded like stocks on financial markets. Some ETFs peg their value to the performance of the S&P 500, while others rise and fall with the value of more specific assets and investments, such as stocks, bonds, commodities — and now bitcoin.
Bitcoin ETFs are funds that hold bitcoin, and their value will fluctuate with the price of bitcoin. Banks and investment firms will now be able to sell the bitcoin ETFs to regular consumers, incorporating bitcoin further into mainstream financial markets.
Previously, buying bitcoin and other crypto was far more complicated: Investors had to go through cryptocurrency trading firms such as Coinbase that charged transaction fees. Now, retail investors will be able to buy the bitcoin ETFs in the same way they might buy a public company’s stock or a mutual fund.
Why did the SEC approve bitcoin ETFs?
The agency continues to say that bitcoin and other cryptocurrencies are extremely risky, and it has been wary of approving bitcoin ETFs. But Gensler said in a statement Wednesday that a court case essentially forced the agency’s hand.
Last year, a federal court ruled that the regulator had not sufficiently explained its reasons for rejecting an application to list a bitcoin ETF by crypto asset manager Grayscale. The SEC’s decision came in response to that ruling, Gensler said.
“While we approved the listing and trading of certain spot bitcoin ETP [exchange traded product] shares today, we did not approve or endorse bitcoin,” Gensler said, using the agency’s preferred term for the bitcoin ETF. “Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”
Why does the SEC argue bitcoin ETFs are risky?
All crypto currencies, including bitcoin, are extremely speculative and volatile. After crypto exchange FTX filed for bankruptcy in November 2022, the price of bitcoin plunged to just over $16,000 in a month and a half, from its peak of around $64,000. Multiple crypto banks and exchanges collapsed in 2022, and scores of investors lost their investments.
Moreover, the industry is still rife with scams, and bitcoin is regularly used by criminals seeking to move money without being blocked by governments.
Which firms are selling the ETFs?
Eleven firms won approval to issue the ETFs. They include traditional asset managers Fidelity and Invesco, as well as crypto-focused Grayscale Investments, Valkyrie Funds and Hashdex.
Gerrit De Vynck contributed to this report.
