The Securities and Exchange Commission (SEC) opened the door to Bitcoin exchange-traded funds (ETF) on Wednesday. This step was expected. On Tuesday, a fake message on the SEC’s hacked account on Elon Musk’s online service X (formerly Twitter) anticipated permission for a short time. The Bitcoin price only benefited temporarily from the approval of Bitcoin ETFs on Thursday and rose above the $49,000 mark for the first time since December 2021. However, it quickly gave up the gains and fell to a daily low of $45,613.
The decision allows listed funds in the US that invest directly in Bitcoin (Bitcoin spot ETFs). Funds from investment heavyweights BlackRock and Fidelity were approved, among others.
The approval has sent a great signal and will create significantly more professionalization for Bitcoin, said Philipp Sandner from the Frankfurt School of Finance and Management, one of the leading experts on digital currencies in Germany. “But this will take months or even longer. Bitcoin is now slowly entering the mainstream; it is becoming viable.”
The decision as to whether the stock exchange supervisory authority would actually approve the ETFs was open until the end. The SEC is generally skeptical of crypto investments and has been resistant to allowing spot ETFs for years. She didn’t give the green light entirely voluntarily. Last year, the supervisory authority suffered a defeat in court after rejecting an application from Grayscale. An appeals court found the decision was arbitrary because the SEC did not make clear the difference from other approved investments. ETFs on Bitcoin future contracts had already been approved in 2021.
Shortly afterwards, BlackRock first rushed forward with an application – and it was generally assumed that the SEC would have little scope for saying no after the court decision.
On Thursday afternoon, the price peaked at $49,021, its highest level since December 2021. However, Bitcoin quickly gave up its gains. It recently fell to a daily low of $45,613. It cost about as much as it did in the morning. The bottom line is that the price hardly benefited from the approval of the ETF, but had already risen significantly beforehand.
“The recent bout of weakness once again illustrates the high volatility of the crypto market and proves that a Bitcoin spot ETF should not be misunderstood as a guarantee of rising prices,” commented crypto expert Timo Emden. “Since several market players now automatically have access to the crypto market, things could continue to be turbulent in the coming hours.” He expects large investors to be able to take profits on a large scale. “Investors should buckle up tight and prepare for price volatility,” warned Emden.
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SEC boss Gary Gensler emphasized that the approval does not mean the regulator’s support for Bitcoin. The SEC always warns investors about the risks of crypto investments such as the huge price fluctuations. Bitcoin, the oldest and best-known digital currency, fell by more than 60 percent in 2022. The price has more than doubled since the beginning of last year.
Agency documents showed that two Democratic members of the five-member SEC leadership committee voted against the approval. At the same time, the commission emphasized that investors must be informed in detail about the investment products. The marketplaces on which the funds are traded already have rules against fraud and manipulation.
Deutsche Bank: Allowing Bitcoin ETFs is groundbreaking – risks remain
Deutsche Bank believes Wednesday’s approval of certain Bitcoin ETFs in the US is a groundbreaking decision. This should improve access to Bitcoin investments for both private and institutional investors, wrote analyst Marion Laboure in a study available on Thursday.
“A Bitcoin spot ETF offers key advantages over equivalent futures-based funds,” Labore continued. A Bitcoin ETF based on futures only reflects the performance of Bitcoin futures and not the actual spot price. While futures prices may often mimic spot trends, they may not reflect them perfectly due to factors such as roll premiums and other imbalances.
A spot ETF, on the other hand, according to the analyst, enables direct exposure to the underlying spot price movements. This would eliminate the need for investors to deal with the complex aspects of the current cryptocurrency ownership model, such as the use of exchanges to purchase and store Bitcoins. Investors could now gain Bitcoin market access through a familiar trading structure on regulated exchanges. This creates an easier entry for mainstream investors who are still hesitant to trade Bitcoins outside of traditional financial systems themselves.
Laboure expects further price increases. One reason for this is that the approval of Bitcoin spot ETFs opens the doors for larger investments from professional investors. Additionally, expected interest rate cuts by major central banks this year would encourage more investors to invest in cryptocurrencies for higher returns.
The expert also expects positive impulses for the Bitcoin price from regulation. The bottom line is that it should increase acceptance of the digital currency, as a clearer regulatory framework increases the use of Bitcoins among professional market participants and the liquidity of the cryptocurrency.
According to the expert, the long-term effects of the increasing acceptance of Bitcoins on the cryptocurrency ecosystem and the financial system still have to be seen. Although the ETF approval marks a new chapter for Bitcoin, price fluctuations are still to be expected given various risks. Incorrectly executed transactions or stolen Bitcoins could have an irreversible and negative impact on the value of the Bitcoin spot ETF.
NEW YORK / WASHINGTON (dpa-AFX)
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