currency
What the approval of Bitcoin funds means in detail
The US Securities and Exchange Commission (SEC) now approves Bitcoin funds. photo
© Fernando Gutierrez-Juarez/dpa-Zentralbild/dpa
The US Securities and Exchange Commission (SEC) has given the green light to Bitcoin ETFs. Even though these financial products are only offered in the USA, the decision has consequences worldwide.
What does approval mean for the crypto market?
Many experts see this as an accolade for Bitcoin. The approval has sent a great signal and will create significantly more professionalization for Bitcoin, says Philipp Sandner from the Frankfurt School of Finance and Management. “But this will take months or even longer. Bitcoin is now slowly entering the mainstream; it is becoming viable.”
What exactly is changing?
The new financial products will make it easier for investors in the USA to invest in Bitcoin. ETF stands for “exchange-traded fund” – translated as “exchange-traded fund”. ETFs are usually used to replicate a specific stock market index, such as the MSCI World, which contains, among others, the shares of Apple, Microsoft, Amazon, Alphabet (Google) and Meta (Facebook). The new Bitcoin ETFs only bet on one horse, namely Bitcoin, and only reflect the price development of the cryptocurrency.
What is the difference to a direct investment?
Investors who buy Bitcoin themselves either have to take care of storing it in a digital wallet themselves. Or they have to trust service providers like Coinbase or Bitpanda, who also offer online wallets with their apps. With the ETFs that are now approved, fund providers such as Blackrock purchase their Bitcoin holdings for their own account. Investors then do not receive the Bitcoins themselves, but rather a certificate certifying their claim to them. The financial institutions charge fees for this. At Blackrock this is 0.25 percent of the investment amount per year.
How will the Bitcoin price develop?
The price fluctuates very strongly and forecasts for further developments are difficult. The importance of ETF approval can be seen from the price of the past few months. In mid-October, before rumors of impending approval began circulating, the price was around $26,500. Before the SEC decision, Bitcoin rose to almost $48,000.
And what does the long-term perspective look like?
Experts believe Bitcoin will reach a record high of over $69,000 in 2024 and is also holding prices of over $100,000. Financial expert Sandner says: “The price is likely to develop positively if investing in Bitcoin becomes less complicated and the first large institutional investors begin to show an interest in Bitcoin.” So-called HODL investors, who hold their crypto holdings no matter how high or low the prices are, even speculate on exceeding the $1 million threshold. On the other hand, there are warning voices, such as the German consumer advice center. Bitcoins are not recommended as an investment due to the risks – from strong price fluctuations to total loss -, consumer advocates said in November.
Are US ETFs also offered in Germany?
No, such “one-trick ponies” contradict the regulations in Germany. That’s why, in contrast to the USA, there are no ETFs in Germany that are based exclusively on the price of gold. If you want to invest virtually in gold, you have to switch to ETCs in Germany. ETC stands for exchange-traded commodities. They work similarly to ETFs: They can also be traded directly on the stock exchange and approximately replicate the price of gold. Legally speaking, ETCs are perpetual bonds and not investment funds. There are similar offers in Germany for Bitcoin. These are so-called ETPs (exchange-traded products) or ETNs (exchange-traded notes), which also reflect Bitcoin.
Why is ETF approval controversial in the crypto scene?
A number of crypto investors expect increased demand for Bitcoin as a result of the entry of the traditional financial industry into the Bitcoin market. This would inevitably lead to an increase in the price because the total number of Bitcoins is limited to 21 million. Critics, on the other hand, view the entry with skepticism, also because Bitcoin was once created as a counter-reaction to the financial crisis for which traditional financial institutions were responsible. With his counter-proposal, the Bitcoin founder, who works under the pseudonym Satoshi Nakamoto, wanted to avoid banks and asset managers from earning money from value creation. Bitcoin expert Sandner doesn’t draw the boundaries so narrowly: “Bitcoin and the idea behind it don’t change. But from now on there are more ways to invest in it. The area is becoming more professional.”