Bitcoin Breaks into Big Leagues, Sparking Investor Excitement and Fear

The first bitcoin-holding exchange-traded funds were grudgingly authorized by the Securities and Exchange Commission on Wednesday. The SEC stated that it remains extremely cautious of cryptocurrencies and that it "did not approve or endorse bitcoin" in its ruling.

Despite only facing a deadline for one application, the SEC stated that it is now completing up the approval process for ten bitcoin exchange-traded funds. According to the agency, this move would create enough competition in the market and offer the newcomers a "level playing field."

An exchange traded fund, sometimes known as an ETF, is a simple method to invest in one or more assets, such as gold, junk bonds, or bitcoins, without having to purchase the assets directly. Supporters of cryptocurrencies believe that this move would further integrate the once-nerdy and specialized area of the internet into the mainstream of finance.

For some months, the regulatory approval has been expected, and since October, the price of bitcoin has increased by about 70%.

A spoof tweet from the Securities and Exchange Commission's account on X Tuesday claimed that trading of bitcoin ETFs had been permitted, but the agency had not really granted any approval-a twist that may have been fitting for the erratic cryptocurrency sector.

Impact of a Spot Bitcoin ETF: Potential Accessibility for New Investors

Many new investors who don't want to go through these extra processes may be able to buy thanks to a spot bitcoin ETF.

The price of bitcoin has already skyrocketed in anticipation of the SEC's clearance, with bitcoin trading at $45,890 Wednesday, up from roughly $27,000 in mid-October. In November 2022, the price had dropped as low as $16,000 due to the insolvency of the cryptocurrency exchange FTX.

Similar to the SPDR Gold Shares ETF (GLD), which enables anybody to invest in gold without needing to locate a location to store or safeguard bars, the new bitcoin ETF will function similarly. For the same reason, some investors put their money into the SPDR Bloomberg High Yield Bond ETF (JNK), which eliminates the need for investors to choose between the more than 1,000 subpar bonds that comprise the index and only one single purchase.

Ten bitcoin ETF applications are nearing approval, according to the SEC. Investors cannot utilize real cryptocurrencies since an ETF won't deposit it into their accounts. One of the main attractions for many cryptocurrency investors is the anonymity that an ETF offers, something that an ETF would not give.

The well-known volatility of the price of bitcoin is the main worry for an investor in one of these ETFs.

Although fiat, or paper, currencies were not widely adopted as a substitute, bitcoin surged to about $68,000 in November 2021. A year later, it dropped below $20,000 as a slew of business failures and scandals undermined confidence in the cryptocurrency space and investors generally avoided riskier assets.