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SEC’s Bitcoin ETFs Approval: All You Need to Know

Plus500 | Thursday 11 January 2024

Wednesday, January 10, may have marked a monumental day for the markets in general, and the Crypto sector, in particular, as the US Securities and Exchange Commission (SEC) approved the much-awaited Bitcoin ETFs. This move was deemed by many to be a “game-changer.”

Here’s what you need to know about Bitcoin ETFs and the significance of the SEC’s approval:

An illustration of Bitcoin coins

What Is a Bitcoin ETF?

First and foremost, to grasp the significance of this regulatory milestone, it's crucial to understand Exchange-Traded Funds (ETFs)

ETFs, or Exchange-Traded Funds, are pooled investment vehicles providing traders access to various markets such as Forex, Crypto, Indices, etc. They can track a basket of financial products and can be traded on stock exchanges. 

Bitcoin ETFs, specifically, are expected to be listed on major exchanges such as CBOE, NYSE, and Nasdaq, where they will be tied to a benchmark reflecting the performance of Bitcoin (BTCUSD).

The Road to Approval

Even though Bitcoin ETFs received recent approval, they have been a topic of discussion for several years, with many asset managers attempting to gain approval since 2013. Nevertheless, the SEC consistently rejected their applications, citing concerns about potential regulatory issues and “market manipulation.”

One notable entity that applied for Bitcoin ETFs is Grayscale Investments, which also faced rejection from the SEC.

However, last year marked a groundbreaking moment for the Crypto sector. In August 2023, a court ruled that the SEC was wrong in declining Grayscale's Bitcoin ETF approval, potentially causing the SEC to reconsider its stance. Since then, discussions and hopes for Bitcoin regulatory approval have intensified, leading to a surge in Bitcoin prices to record-highs.

Finally, on Wednesday, January 10, 2024, the US SEC approved Bitcoin ETFs. Additionally, to address the SEC’s concerns about market manipulation of Bitcoin, NASDAQ, and CBOE, in collaboration with Coinbase (COIN) (a leading Crypto exchange), established a "comprehensive-surveillance sharing agreement" as a market surveillance system.

Why Are Bitcoin ETFs Important?

Numerous market participants anticipate that the introduction of Bitcoin ETFs has the potential to significantly enhance the Crypto market, possibly injecting “billions of dollars” into it. 

This optimism stems from the belief that Bitcoin ETFs will streamline trading, making it more akin to traditional stock trading and less daunting for investors.

Moreover, key financial players such as Fidelity (FIS) and Blackrock (BLK) embracing Bitcoin as a mainstream investment further contribute to this perception. 

Accordingly, should these projections materialize, market experts predict a surge in Bitcoin demand, consequently driving up its prices.

On the other hand, Leo Mizuhara, founder of Hashnote commented that “it will take time for new money to flow into Bitcoin via the new ETFs.” 

How Did Bitcoin React?

Since the start of the year and as of the time of writing, Bitcoin has surged by 4.5% and approximately 162% in the past 12 months. While the effects of yesterday’s decision are yet to be seen, Bitcoin briefly reached $47,000 on Wednesday in a subdued reaction to the decision.

It will be interesting to keep track of Bitcoin’s price chart over the next couple of weeks to see what this decision will yield. 

Bitcoin price chart on the 11 of January 2024

What Else to Keep in Mind

Despite the SEC’s approval, it's worth noting that SEC Chairman Gary Gensler stated that while the SEC “approved the listing and trading of certain spot Bitcoin ETP shares” the SEC “ did not approve or endorse Bitcoin.” 

Gensler also cautioned that “investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to Crypto.” (Source: Bloomberg)

Conclusion

In conclusion, the SEC's approval of Bitcoin ETFs is a noteworthy milestone, believed to streamline Bitcoin trading and potentially enhance its prices. 

However, skepticism persists about the true implications of this development, with SEC Chair Gensler explicitly stating that it doesn't signify the SEC's endorsement or approval of Bitcoin. 

Only time will reveal the outcomes of this regulatory decision and unveil any further developments in the Crypto sphere.


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