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Last week, the U.S. Securities and Exchange Commission, or SEC, authorized a new crypto product that could revolutionize the market. The SEC has approved 11 applications to offer exchange-traded funds, or EFTs, to the market. More than 4 billion dollars worth of ETFs were bought and sold during the first day of trading, showing the potential market in the future.
Many of the bigger financial institutions now offer ways for ordinary investors to invest in Bitcoin. These ETFs are managed groups of assets that issue shares off the asset’s underlying value. Bitcoin ETFs are very similar, as they manage large amounts of bitcoin with shares issued off their total value. These ETFs are now available to the general public, allowing them to invest in cryptocurrency without buying crypto. Investors now have easier access to purchase crypto, as they no longer have to hold crypto in online wallets and memorize long passwords.
Investors can also buy shares of these ETFs where they already buy their stocks. The new availability of these ETFs allows investors to avoid the hefty transaction fees on crypto exchanges. Though investors were previously limited to future contracts being tied to bitcoin derivates, now, they can now purchase crypto more directly. In fact, the former limits have been criticized for not being closely tied to Bitcoin's real price. The new ETFs are considered “spot” ETFs because they actually buy and sell the digital currency instead of the derivative. Spot derivatives are regarded as more reliable and more closely tied to the actual value of the asset.
These new ETFs are viewed as a sign that mainstream financial companies are still willing to deal in crypto even after the recent bankruptcies and scandals. However, some skeptics are worried the new ETFs won’t solve many of the problems already associated with Bitcoin. Many professionals are still worried about the potential for fraud and extreme volatility that faces many unknowing investors. Others worry that the new trading in bitcoin won’t actually increase its price. Vanguard, one of the largest investment management companies, is not offering Bitcoin ETFs to their clients. Vanguard said the new ETFs do not “align with (their) offer focused on asset classes such as equities, bonds, and cash.” However, many analysts are encouraged by the volume of the early trading, saying the 4 billion traded in one day compares favorably to other ETF launches. Steven McClurig, the chief investment officer at Valkyrie, a large investment firm offering bitcoin products, thinks the price of a bitcoin could reach 150k by the end of the year. This is a substantial improvement, considering Bitcoin is currently around 42k.
Crypto ETFs in Europe and Canada have so far needed more interest, with the funds redistributing capital already in the market instead of contributing new capital. However, there is a hope that a renewed interest in crypto in America could reunite excitement globally. Allowing crypto to become a more universally traded asset. Sandy Saul runs the digital asset branch of Franklin Templeton, a firm offering ETFs. Believes that it will take several months before we realize how transformative a product Bitcoin can be.
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