Editor’s note: This is an update of an earlier article published in December 2023 that defined the pros and cons of cryptocurrencies leaping into traditional financial markets.
After a 10-year battle with the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) finally approved the establishment of the legal basis for the use of what is known as a Bitcoin exchange-traded fund, or ETF, on Wednesday, January 10th.
Numerous new investors who were unwilling to go through the extra procedures necessary to buy actual Bitcoin will now have access to cryptocurrencies thanks to the approval of ETFs for cryptocurrency in the U.S. - a landmark decision for both traditional finance and digital currency markets.
Approved but still doubted
Despite its positive decision, the SEC voiced doubt regarding cryptocurrencies and stated that its ruling did not imply that it supports or condones Bitcoin. Its chairman, Gary Gensler, advised investors to be aware of the numerous risks linked with Bitcoin as well as with products the value of which is linked to it.
How has Bitcoin’s price has been impacted by SEC’s decision?
Back in November 2023, when FTX went bankrupt, Bitcoin’s price fell to US$16,000. However, in just a few hours following the SEC’s decision, the price rose to US$46,303.
“The SEC’s approval of spot Bitcoin ETFs should add further confidence to the digital asset ecosystem and could pave the way for Wall Street to move deeper into cryptocurrencies as an asset class,” commented Justin Arzadon, Head of Digital Assets at BetaShares, one of the top Australian providers of exchange-traded funds.
According to some experts, in 2024 ETFs may attract between US$50bn to US$100bn which may lead to a spike in Bitcoin’s price, resulting in a whopping US$100,000. At the same time, other experts are less optimistic, expressing more doubt and concern regarding the wide usage of crypto ETFs. They believe Americans' retirement funds may be overly exposed to risk and volatility if they invest in crypto ETFs because the price of Bitcoin has witnessed serious fluctuations which occurred without any prior warning.
What was previously known?
There was much excitement in the cryptocurrency and financial sectors because a significant change was expected to happen.
Traders, investors, businesses, and ordinary individuals were awaiting the decision that the U.S. Securities and Exchange Commission (SEC) had to make by January 10, 2024. This regulatory step will merge the worlds of traditional finance and digital currencies, such as Bitcoin, and establish the legal basis for the use of what is known as a Bitcoin exchange-traded fund, or ETF.
What is the key goal behind the Bitcoin ETF?
Simply put, the primary objective of a Bitcoin ETF is to streamline and regulate investor access to the cryptocurrency market. An ETF will suit standard market players by offering an organized investment instrument that allows exposure to Bitcoin while eliminating the hassle of navigating the complexities of digital wallets and cryptocurrency exchanges.
Many businesses had been vying for Bitcoin ETF approval. Crypto enthusiasts believe that the regulations on ETFs will facilitate the entry of “traditional” investors into the cryptocurrency market, with many stating that this step could increase Bitcoin's influence in the financial industry.