The US has finally given approval for Bitcoin to be included in mainstream investment funds. The Securities and Exchange Commission (SEC) has authorized spot Bitcoin exchange-traded funds (ETFs), allowing anyone from pension funds to ordinary investors to purchase them. However, the head of the SEC, Gary Gensler, issued a warning about the risks associated with Bitcoin, highlighting its speculative and volatile nature, as well as its use in illicit activities. Despite the cautionary message, cryptocurrency enthusiasts celebrated the decision with excitement and memes about becoming rich.
The approval comes after previous rejections by the US financial watchdog, citing concerns about fraud and manipulation. However, a US court ruled last year that the SEC’s justifications were inadequate. The initial announcement of the approval was mistakenly posted on Tuesday but quickly withdrawn as unauthorized.
ETFs are investment portfolios that allow investors to bet on multiple assets without directly purchasing them. They are traded on stock exchanges like shares and their value depends on the performance of the overall portfolio in real time. While some ETFs already indirectly include Bitcoin, spot Bitcoin ETFs will directly purchase the cryptocurrency at its current price throughout the day.
The excitement surrounding this decision stems from the fact that several investment companies, including Blackrock and Fidelity, have been waiting for approval to start buying Bitcoin for their own ETFs. This approval opens up the speculative world of Bitcoin to a new group of investors who can now enter the market without dealing with digital wallets or crypto exchanges. It is expected that billions of dollars will flow into the Bitcoin market as these financial companies start purchasing the digital coin. This influx of investment is likely to drive up the value of Bitcoin.
However, it is important to note that Bitcoin’s price is notoriously volatile. It reached nearly $70,000 per coin in 2021 before dropping to $16,000 in 2022 due to industry scandals. In 2023, it experienced a steady rise, partly fueled by the hype around the Bitcoin ETF approval, and is currently valued at $44,000. Bitcoin was the first cryptocurrency and remains the most valuable and well-known. Its price is often seen as an indicator of the entire cryptocurrency industry.
The decision to allow Bitcoin in mainstream investment funds is seen by some as a sign that the establishment is taking Bitcoin seriously as a speculative asset. However, others argue that cryptocurrency is about rejecting traditional financial systems in favor of a decentralized alternative. The influx of investment from major wealth-management institutions may lead to increased interest in cryptocurrency technology as a whole.
Investors considering ETFs linked to Bitcoin should be aware of the rapid and unpredictable price changes associated with the cryptocurrency. Additionally, cyber-crime poses a potential risk, as Bitcoin and other cryptocurrencies have been targeted in costly attacks. The environmental impact of Bitcoin is also a concern, as it relies on powerful computers worldwide to process transactions and create coins. Investment companies will need to address these environmental concerns to meet the expectations of buyers focused on environmental, social, and corporate governance compliance.