A long-awaited moment for the crypto industry: On 10th of January The U.S. Securities and Exchange Commission approved for a spot bitcoin ETF, an exchange traded fund for a digital currency. What are ETFs and how will they change the crypto industry?
After series of denial from the SEC to approve a bitcoin ETF, investors can now invest indirectly in bitcoin via issuer funds like BlackRock's or Grayscale's. The shift is huge for the creditability of bitcoin: Throughout its short but controversial history, bitcoin's reputation as an asset has gone through levels of fraud, malicious activity and scandals surrounding digital currencies. The approval is a massive win for the industry and a bonus point for a more decentralized future.
How do ETFs work?
Trading cryptocurrencies is a tricky game. Due to price volatility in cryptocurrency markets, it is impossible for any investor - big or small - to predict which way the indices are moving. Rather than fully understanding what cryptocurrencies are, how they work and what affects their movements, an exchange-traded fund tracks the performance of an underlying asset for the investor. Investors are familiar with ETFs for assets like stocks, currencies or commodities like gold, and as of January 2024, bitcoin.
Broader investor audience
"Not putting all eggs in one basket" -saying is the golden rule of investing. This is why a bitcoin ETF might be a game-changer for the lesser experienced crypto investors as it helps to diversify the portfolio with a lower risk than directly owning bitcoin. In addition, some analysts think that broadening the crypto audience might aid to stabilize its market price volatility.
More crypto ETFs?
Bitcoin is the world's first cryptocurrency and it is only fitting for it to be the first crypto to have its own spot ETF. Furthermore, the CEO of BlackRock Larry Fink backed the idea of an ETF for ether, the native token of the Ethereum blockchain after the bitcoin ETF launch. It could an additional stepping stone for crypto to become part of every average investment portfolio as it is made easier and quicker to buy - without having the crippling risk of a forgotten crypto wallet password.