Bitcoin’s journey into mainstream finance has reached another milestone – and another record price. Cryptocurrency was is trading at $ 66,975 (£ 48,456) following the launch of an exchange traded fund (ETF) in the United States, which significantly increased bitcoin’s exposure to investors.
The fund, which opened on October 19, allows investors to speculate on the future value of bitcoin – without actually owning it. This is the first time that investors have been able to trade a bitcoin-related asset on the New York Stock Exchange, and it was preceded by a lot of media attention and hype in the financial markets.
It started trading at US $ 40 (£ 29) per share and ended the day up 5% with a few US $ 570 million (£ 412million) of assets, making it the second most traded ETF to date (the first was created by BlackRock, the world’s largest asset management company).
And the impact on the price of bitcoin has been extraordinary. It broke its all-time high of $ 64,895 to hit a new high of $ 66,975 and at the time of writing it was hovering around $ 65,000. This is a big change from mid-July 2021 when bitcoin hit a 2021 low of less than $ 30,000, reflecting its enormous volatility.
Many financial institutions have already tried to get Bitcoin ETF approved without success. So far, the Securities and Exchange Commission (SEC) (the US government agency that protects investors) has been reluctant to approve one. This was in part due to the intense volatility of bitcoin, as well as broader concerns about the unregulated cryptocurrency industry.
But Gary Gensler, chairman of the SEC, noted the commission would be more comfortable with “futures” ETFs, since they are traded on a regulated market. It is an important change of direction for the SEC, which has happened since Gensler took the helm in April 2021.
ETFs trade like any normal stock, are regulated and anyone with a brokerage account can trade them. This new fund, named the ProShares Bitcoin Strategy ETF (or BITO for short), is the first to expose traditional investors to the ups and downs in the value of bitcoin, without them having to go through the complex process of buying the coins themselves.
Although U.S. investors can already buy bitcoin futures contracts directly from Chicago Stock Exchange and unregulated exchanges such as BitMEX (as well as bitcoin directly from unregulated exchanges), the launch of an ETF opens up the market to a wider variety of investors, including pension funds – and adds to the growing acceptance of bitcoin over financial markets.
Some are still skeptical of bitcoin because of its link to criminal activity, although a recent report suggests that this appears to be decreasing. And Jamie Dimon, CEO of investment bank JP Morgan, claims bitcoins is “worthless” and that regulators “will regulate hell”. (Nonetheless, JP Morgan gave its wealth management clients access to cryptocurrency funds in July 2021.)
Eric Balchunas, senior analyst at Bloomberg, is not surprised by the price appreciation and describes the launch of the ETF like “a first blockbuster, smash, home run [which] brings a lot of legitimacy and eyes to the crypto space ”.
But what impact will BITO have on the cryptocurrency space? As a new product, it has already exposed more investors to the ups and downs in the value of bitcoin in a regulated market. Many of them have probably already felt uncomfortable buying cryptocurrencies from unregulated exchanges and having to store the asset themselves.
Other investment funds interested in cryptocurrencies will no doubt be encouraged by the success of BITO, and eager to list ETFs of their own who are exposed to bitcoin and its rivals. Several other ETF providers are likely to launch their bitcoin ETFs within days of ProShares’ debut, including Invesco, VanEck, Valkyrie, and Galaxy Digital.
It’s a development that is sure to make investing in cryptocurrencies easier and more mainstream – and an important stepping stone for their adoption in mainstream finance.
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