Eleven new bitcoin funds made their debut on U.S. markets on Thursday, offering greater accessibility to the cryptocurrency for regular investors.

The recently introduced exchange-traded funds, also known as ETFs, offer investors a vehicle that closely follows the value of bitcoin.

On Wednesday, the Securities and Exchange Commission gave the go-ahead to 11 funds from companies like Blackrock, Invesco, and Fidelity. This could benefit you as managers are striving to entice investors by offering lower fees.

Not only are the approvals a success for the fund managers, but they are also a victory for the cryptocurrency sector. This comes as a much-needed win after a period of instability lasting almost two years, which included the downfall of multiple crypto companies, with FTX being the most prominent in November 2022.

The approval from the SEC was lackluster, to say the least. Gary Gensler, the head of the agency, has consistently expressed the need for increased regulation and safeguards for cryptocurrencies.

Gensler advised investors to exercise caution regarding the multitude of risks involved with bitcoin and any products that are linked to cryptocurrency.

The approval from regulators was expected for a few months now. As a result, the price of bitcoin has increased by approximately 70% since October. This is due to the belief that bitcoin ETFs will lead to a rise in demand for the cryptocurrency.

On Thursday, Bitcoin saw a 2% increase in early trading. The performance of the newly introduced ETFs varied during trading.

Certain experts believe that the utilization of ETFs could potentially aid in stabilizing the value of cryptocurrency through increasing its usage and reach. However, there is still apprehension among others that crypto ETFs could introduce excessive risk and fluctuation into the retirement funds of Americans.

“The significant price instability of bitcoin, along with its varying worth in relation to stablecoins and other digital currencies, may potentially subject traditional investors to unfamiliar levels of investment uncertainty,” stated Yiannis Giokas, senior director at Moody’s Analytics.

There are some important facts to keep in mind regarding bitcoin ETFs.

What is causing all the enthusiasm surrounding a Bitcoin ETF?

An ETF, short for exchange traded fund, provides a simple means to invest in a single asset or a collection of assets, such as gold or junk bonds, without physically owning them. Unlike regular mutual funds, ETFs are traded on the stock market and can be bought and sold at any time during the day.

Since the introduction of bitcoin, individuals interested in possessing one would need to purchase it. This would require either gaining knowledge on cold wallets or creating an account on a cryptocurrency trading platform such as Coinbase or Binance.

A potential bitcoin ETF could attract numerous new investors who prefer not to go through additional measures.

The value of bitcoin has significantly risen in expectation of the SEC’s authorization, with bitcoin being traded at $47,500 on Thursday, an increase from approximately $27,000 in mid-October. The price had dropped to $16,000 in November of 2022 due to the collapse of the crypto platform FTX.

How does the ETF function?

The latest bitcoin exchange-traded funds (ETFs) will function similarly to the SPDR Gold Shares ETF (GLD). This enables individuals to invest in gold without the hassle of finding a physical storage location or safeguarding it. This is also the rationale behind why some individuals opt to invest in the SPDR Bloomberg High Yield Bond ETF (JNK), as it allows them to purchase a single asset instead of dealing with over 1,000 lower-grade bonds included in the index.

The BITO ETF, established in 2021, involves holding bitcoin futures instead of the actual cryptocurrency. As a result, its prices do not closely mirror those of a direct bitcoin ETF.

How many ETFs for Bitcoin could potentially exist?

According to the SEC, 11 ETFs have been granted approval, but there will likely be more applications for trading in the following months.

What are the drawbacks of an ETF?

Some long-time supporters of cryptocurrency may disagree. The creation of cryptocurrencies, such as bitcoin, was partly driven by a lack of trust in the conventional financial system. In the case of ETFs, Wall Street would act as a middleman between investors and cryptocurrency.

ETFs have fees, but they are usually lower than other financial industry fees. The fees are displayed as an expense ratio, which represents the percentage of the fund’s assets that the ETF will use each year to cover its expenses.

WHEN IS IT MORE ADVANTAGEOUS TO POSSESS REAL BITCOIN?

An ETF will not deposit real cryptocurrency into the accounts of investors, making it unusable for them. Additionally, an ETF would not offer the same level of privacy as crypto, which is a major attraction for numerous crypto investors.

What are the concerns that investors should have?

The primary concern for an investor in these ETFs is the well-known fluctuation in the value of bitcoin.

In November of 2021, bitcoin reached a high of nearly $68,000, but it did not gain widespread acceptance as a substitute for traditional currencies. However, a year later, its value dropped below $20,000 due to a decline in investor interest and several controversies within the cryptocurrency sector, which eroded confidence in its reliability.

Despite efforts from regulators and law enforcement to address issues within the cryptocurrency industry, such as with individuals like Sam Bankman-Fried of FTX, there is still a sense of unregulated chaos within the field.

This week, fraudulent activity on the SEC’s X account caused a significant increase in prices after a fabricated tweet falsely announced the approval of ETFs. This incident has brought attention to the potential for scammers to manipulate the market and raised concerns about the SEC’s ability to prevent such occurrences.

Source: wral.com