On Thursday, more than $3 billion worth of a new investment product tied to Bitcoin was traded within a few hours, marking a significant moment for the cryptocurrency industry. This was made possible by the approval of eleven exchange-traded funds (ETFs) by federal regulators, making it easier for investors to bet on the cryptocurrency market. Major financial firms such as BlackRock and Fidelity are now offering these ETFs.
It may take some time to see the full impact of these ETFs on the cryptocurrency industry, which has faced challenges such as market crashes and bankruptcies. The initial trading data did not reveal how much new investment flowed into the Bitcoin funds, as some of the trading activity may have been from investors quickly flipping their shares.
According to Sandy Kaul, who runs the digital asset arm of Franklin Templeton, one of the firms offering the ETFs, it will take at least six months to determine if these products are truly transformational.
Bitcoin’s price briefly rose to $49,000 on Thursday before dipping to $46,000. This was fueled by optimism surrounding the approval of the ETFs by the Securities and Exchange Commission (SEC). This approval is a major victory for the crypto industry as it prepares for legal battles with the federal government. The SEC has already sued Coinbase and other major firms for illegally marketing unregistered securities, which poses a threat to the industry.
In a statement, the SEC chair Gary Gensler clarified that the agency did not endorse or approve Bitcoin. He also criticized most crypto trading platforms for breaking the law and having conflicts of interest.
Previously, investing in Bitcoin or other cryptocurrencies required storing them in specialized wallets or opening accounts on crypto exchanges, which have faced regulatory scrutiny. This has been a barrier for many investors who struggle to understand these platforms or face issues such as bugs, hacks, and high transaction fees. ETFs offer a simpler option, where investors can buy shares in a fund that contains Bitcoin. These funds are traded on traditional stock exchanges, making it more accessible to wealth managers.
The crypto community has been advocating for a Bitcoin ETF for over a decade, believing it would attract billions of dollars in new investment. However, the SEC repeatedly rejected these efforts, citing concerns about fraud in the crypto markets.
The tide turned in August when a federal appeals court ruled that the SEC’s rejection of an application by Grayscale Investments was arbitrary and capricious. This ruling left the SEC with no choice but to approve the ETFs. Brian Armstrong, the CEO of Coinbase, praised Grayscale for this achievement, as they are working with several companies offering the ETFs.
The approval of these ETFs exposed divisions within the SEC over crypto regulation, with two Democratic commissioners expressing concerns and two Republican commissioners supporting it. One of the Democratic commissioners, Caroline Crenshaw, said that these approvals could further sacrifice investor protection, citing illegal price manipulation and fraud in the crypto market.
Republican commissioner Hester Peirce, who often clashes with Gensler, also criticized the SEC’s handling of the Bitcoin ETF applications, saying it has created confusion in the market and alienated the industry.
The approval of these ETFs has brought back the enthusiasm seen in 2021 when Bitcoin’s prices spiked. Crypto enthusiasts gathered for a party at Pubkey, a Bitcoin-themed bar in Manhattan, and the official Twitter account for Franklin Templeton changed its profile picture to include laser eyes, a popular Bitcoin meme.
Steven McClurg, the chief investment officer for Valkyrie, a firm offering the new Bitcoin product, believes that this is only the beginning for this market. He predicts that Bitcoin’s price will soar to over $150,000 by the end of the year.
