The US securities regulator has finally given the green light for the launch of exchange-traded funds tracking the price of bitcoin, marking a watershed moment for crypto assets.
The Securities and Exchange Commission on Wednesday gave approval for the launch of 11 Bitcoin ETFs, with funds lined-up from Wall Street giants BlackRock and Fidelity, as a long-running regulatory saga nears its end.
It’s been a rocky year for bitcoin. Since the collapse of FTX, the leading cryptocurrency has failed to reach the dizzying heights it reached in 2022.
However speculation about the approval of a Bitcoin spot ETF – which would allow investors to track the price of bitcoin without buying the cryptocurrency – has helped to propel it higher in recent months.
So what will the decision mean for the cryptocurrency and can UK investors buy the Bitcoin ETF?
To the moon: Bitcoin’s price has risen in recent months in anticipation of the SEC’s decision
What is a Bitcoin ETF?
US regulators finally came to a decision on spot bitcoin exchange-traded funds (ETFs) on Wednesday.
The SEC’s decision marks a significant milestone for cryptocurrencies in gaining mainstream acceptance.
The only way to currently buy bitcoin is from an exchange, which can be an intimidating process and includes confusing technical aspects like wallets and keys.
It also raises security concerns regarding custody of the assets.
This has prompted big financial institutions to look at launching their own ETF, which is a type of fund that generally tracks an index or bundle of securities.
A Bitcoin ETF would track the price of bitcoin and be available through brokers to buy and sell, giving investors the opportunity to gain exposure to cryptocurrencies without buying crypto itself.
Simon Peters, market analyst at eToro said: ‘The consensus among the crypto community is that if these bitcoin spot ETF applications are approved, this could trigger the floodgates to open, as institutional investors who have to a degree have been frozen out of the crypto space can now get exposure via a regulated instrument.’
The SEC approved 11 Bitcoin ETFs from major institutions like Invesco and Fidelity, which could start trading as soon as markets open on Thursday.
What is a Bitcoin ‘spot’ ETF
Unlike a futures-based ETF, which tracks futures contracts, a spot-bitcoin ETF is an investment vehicle that directly owns some bitcoins through which investors have exposure without actually having to hold them.
Bitcoin holders think approval could lead to the market being opened to millions more investors, clearing the way for billions of dollars in fresh investment.
The US Securities and Exchange Commission has been reluctant to sanction such funds under the chairmanship of Gary Gensler, partly due to bitcoin’s volatility and its widespread use by fraudsters.
Each will be competing for the attention of potential investors, meaning there could be some serious competition on fees.
Will the price of Bitcoin keep rising?
Mounting speculation that the SEC could approve Bitcoin ETFS to start trading prompted investors to buy the currency in anticipation.
On Monday, the price of bitcoin neared the $48,000 mark for the first time in a year, although it had dropped back to around $45,000 by Wednesday.
This was largely a result of hackers accessing the SEC account on X (formerly Twitter) and posting about approval.
This sent bitcoin higher before it crashed back 5 per cent as the SEC confirmed it was fake, indicating just how volatile the price of bitcoin is.
Susannah Streeter, head of markets at Hargreaves Lansdown says: ‘Investors should be wary of trying to catch a ride on crypto solely on these moments of momentum, particularly given the highly volatile journey that crypto has been on.
‘The events of the past 24 hours also should serve as a warning that fraudsters operating pump and dump schemes are numerous in the crypto wild west and speculators can get their fingers badly burned.’
Once news had filtered through that the US regulator had approved the ETFs, bitcoin kept trading at the $45,000 mark.
On Thursday morning, the cryptocurrency was teetering at around $46,000.
Other major cryptocurrencies rose on the news. Ethereum is up nearly 10 per cent to $2600 while solana rose 3 per cent to $100.
Ipek Ozkardeskaya, senior analyst at Swiss Bank says: ‘[Any] price pullbacks could be interesting entry opportunities for long-term traders, and hodlers, as the approval of spot ETFs will attract a significant amount of capital capital in the sector and should have a potentially massive impact on the valuations across the sector.’
> Check the price of cryptocurrencies here
Can UK investors buy the Bitcoin ETF?
The approval of Bitcoin ETFs in the US may well prompt speculation that other countries could follow, but for now the funds will only be available in the US.
In the UK, US ETFs are not available for sale because they don’t issue a Key Investor Documents.
It means fund groups would need to launch funds specifically for the European or UK market.
The FCA has clamped down on crypto activity and marketing in recent months
Last summer, Jacobi Asset Management listed Europe’s first spot Bitcoin ETF, but it might prove more difficult in the UK.
Laith Khalaf, head of investment analysis at AJ Bell says: ‘In 2021 the FCA banned the sale of ETNs (Exchange Traded Notes) containing ‘unregulated transferable cryptoassets’ – these contained really complex whizzy derivatives and financial engineering to gain exposure to the asset class.
‘The reasons given by the FCA at the time were that crypto had no inherent value, was wildly volatile, rife with financial crime, and didn’t fulfil a financial planning need for investors. It’s difficult to make a case that any of that has changed.’
Could there be a Bitcoin ETF in the UK?
Does that mean there is no chance of a Bitcoin ETF in the UK whatsoever?
Some commentators think the SEC approval could open up the opportunity for the UK watchdog to do the same.
Khalaf thinks it ‘isn’t a slam dunk that we will get one over here, because the UK regulator may not approve the sale’.
The FCA has made it clear it thinks there are risks that come with investing in any cryptocurrency and cracked down on their marketing. So the path to approving an ETF could be a long one.
Jason Hollands, managing director at Bestinvest says: ‘I am personally doubtful that the FCA will authorise bitcoin or other cryptocurrency ETFs to be made accessible to UK retail investors any time soon.
‘The FCA have repeatedly flagged concerns about the extreme volatility of crypto assets, the high risk of losses and the difficulties retail investors face in valuing them.’
However, given that the FCA is bringing crypto activities under its provision, Khalaf thinks it ‘may pave the way for crypto ETFs at some point in the future. If or when that might happen is anyone’s guess.’
If the FCA were to approve crypto ETFs, it’s unlikely they would be marketed primarily to retail investors for now.
Holland says: ‘It is possible that these would be primarily accessible for professional investors such as discretionary fund managers or those certified as sophisticated investors.
‘This is because since the introduction of the FCA’s Consumer Duty principle – a major regulatory development – last year (the aim of which is to increase consumer protection for retail investors and ensure regulated firms are focused on good client outcomes), execution-only platforms have become more cautious about the access they provide to higher risk or more complex products rather than relying on the ‘caveat emptor’ (buyer beware) principle.
‘For example, some platforms have removed access to certain investment trusts with higher fees or lower levels of liquidity. It is too early to say platforms how would treat a theoretical UK-listed Bitcoin ETF.’
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