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In a historic move, on January 10, 2024, the U.S. Securities and Exchange Commission (SEC) gave the green light to the first set of 11 spot Bitcoin exchange-traded funds (ETFs) from major sponsors like BlackRock, Invesco, Fidelity, Grayscale, and Ark Invest. This approval of no less than 11 spot Bitcoin ETFs marks a significant step for the crypto world, providing investors from all spheres with new avenues to gain exposure to bitcoin through regulated stock exchanges (namely Nasdaq, NYSE and the CBOE).
Exchange-traded funds (ETFs) are baskets of securities traded on the stock exchange, which offer a simple yet powerful way for individuals and institutions to access diverse financial markets. Generally speaking, these funds provide investors with diversified exposure to various assets, such as stocks, bonds, or commodities, mirroring the performance of a specific index. ETFs can offer flexibility, liquidity, and transparency, which has made them a popular choice for both individual and institutional investors looking to diversify their portfolios.
Let’s take a look at the impact of the U.S. spot Bitcoin ETF approval and what it means for investors and the crypto world.
What’s a spot Bitcoin ETF?
A spot Bitcoin ETF is an investment fund that tracks the performance of bitcoin, allowing investors to gain exposure to the cryptocurrency without owning it directly. These funds trade on traditional stock exchanges, which provides a metaphorical bridge between the traditional FIAT world, and crypto investments. In short, it is a regulated and accessible way for investors from the FIAT world to participate in the Bitcoin market. Spot Bitcoin ETFs also allow investors to gain access to the value of bitcoin without being exposed to the complexities and associated risks of direct ownership, including setting up and managing a crypto wallet or account, some of which have in the past been poorly managed, or become the target of hackers.
Implications for investors
The approval of these 11 spot Bitcoin ETF has far-reaching consequences for investors. It opens up the market to a broader audience, including those with little experience in trading cryptocurrencies. The recently approved ETF has the potential to captivate a section of investors who have been hesitant in the past, thereby hastening the widespread acceptance of bitcoin in the year 2024. The impact has been likened by many in the financial sector to the approval of the SPDR Gold Shares ETF in 2004, which significantly expanded the gold market.
Some analysts, including Sam North from eToro, and Raoul Pal, co-founder and CEO of Real Vision Group, have suggested that 2024 could see the conditions brew for the perfect crypto storm. April 2024 is also the date set for the next bitcoin halving event, which will see the block reward fall from 6.25 to 3.125 bitcoins. The sky high interest rates of 2023 are also expected to fall this year, potentially unlocking liquidity for both individual and institutional investors. These macro circumstances, coupled with the halving’s impact on supply and the ETF approval’s impact on demand, could paint a very promising picture for the future of bitcoin and the overall value and adoption rates of cryptocurrency in general.
Increased distribution, credibility, and utility
The bitcoin ETF’s approval means increased distribution in the U.S. and enhanced credibility for crypto as an asset class. It will also help to remove the stigma associated with bitcoin, transforming it into a more accepted and mainstream investment. Following the approval, Kevin de Patoul, co-founder and CEO of Keyrock, stated how this landmark move shows how “bitcoin is no longer considered shady or infamous. This significantly changes the perception for the mainstream public”.
This enhanced sentiment, market legitimacy, and accessibility to bitcoin will also have a positive impact on spending. As widespread confidence and trust in cryptocurrencies increases among consumers, they are more likely to adopt new digital assets and an interest in their greater utility, including how to leverage their funds for transacting. The same positive market sentiment could also lead to increased merchant acceptance, further integrating the opportunity for consumers to use cryptocurrencies for payments into their spending habits.
Easier access for mainstream investors
With a spot bitcoin ETF, mainstream investors can now easily gain exposure to cryptocurrency through their brokerage accounts; the ETFs will be easily accessible on the Nasdaq, NYSE, and the CBOE. This accessibility is a game-changer, allowing for portfolio diversification without the complexities of managing digital wallets. The approval is expected to attract major inflows of capital into the crypto market.
The U.S. approval of these 11 spot Bitcoin ETF marks a pivotal moment in the maturity of the crypto asset class, granting investors a secure and straightforward way to access bitcoin through their brokerage accounts. The ETF approval also provides a credible stamp of approval for large institutions, removing barriers to entry and paving the way for widespread adoption of cryptocurrency as a mainstream asset class and payment option.
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