The announcement on Wednesday that the Securities & Exchange Commission (SEC) approved all 11 Bitcoin ETF applications on its desk served to ignite the crypto market with a flood of excitement and investment. It’s just one of the many factors making 2024 look oh so promising for crypto. But what makes the Bitcoin ETFs such a big deal, and what happens next? Let’s dive in.
First, what is an ETF? At a basic level, ETFs – or Exchange Traded Funds – are a trading mechanism to invest in just about anything, including bonds, commodities, stocks, real estate, and currencies. ETFs are growing in popularity in America, being one of the top three methods of investment that has seen growth in previous years.
There are two types of ETFs: ones that allow you to invest without taking direct ownership of what you’re investing in (future ETFs), and spot ETFs, which actually hold an asset. For cryptocurrency, that means in a spot ETF, actual crypto is held in the ETF, rather than complicated contracts and deals that “rely” on the price of crypto. Bitcoin future ETFs have been available on the market since October 2021. Bitcoin spot ETFs, however, have been repeatedly denied, which along with regulatory uncertainty has put a damper on the crypto market over the past couple of years. The “will they, won’t they?” approach from governments (around the world, but especially the U.S.) has had big investors nervous about jumping into crypto. Allowing futures seemed like a baby step toward what many thought would inevitably lead to spot ETFs down the road. It turns out those people were right, but it probably took longer than expected (and hoped).
Spot ETF Approval
Since ETFs are a familiar and comfortable trading modality for big investors, the approval of any one Bitcoin spot ETF would be a signal of credibility and incoming investment capital. That’s why financial firms of various sizes have been applying for the passage of a spot Bitcoin ETF for the past 10 years – with every one of them failing, until yesterday.
The approval of the Bitcoin spot ETFs hasn’t been unexpected, despite the SEC’s legal aggression toward the industry over the past year. Pushback from congressional leaders over the SEC’s alleged overstepping of its regulatory authority in tandem with new applications coming in from firms like BlackRock – being the largest financial management firm in the world – both implied that the agency was likely to issue approval for a spot Bitcoin ETF soon.
The approval of all 11 Bitcoin ETFs, however, has been almost seismic in its impact on the market, and it’s not showing signs of letting up in the future.
How big of an impact can we expect? Analysts at Bernstein are talking about Bitcoin tripling in value by 2025, in part due to the spot Bitcoin ETF approvals. To illustrate their importance, analysts are looking toward the approval of the first spot gold ETFs back in 2004. At the time, gold was valued at a hefty $1 to $2 trillion. In the few years following the approval of the spot gold ETF and the ensuing investments from major firms and entities around the world, the value of gold went up to $16 trillion, according to Vijay Ayyar, VP of crypto exchange CoinDCX. “Bitcoin’s adoption will be much faster and bigger than that,” Ayyar said to CNBC.
It’s not the first time that Bitcoin has been put on the same level as gold. The two are both considered viable hedges against inflation, with others recognizing that diversifying into both directions – cryptocurrency and precious metals – provides the best cushion from the instability of fiat currency.
With cryptocurrency taking a giant leap toward legitimacy thanks to the approvals of the Bitcoin spot ETFs, its role on the world stage as the future of currency is becoming more and more concrete.
Cryptocurrency ETFs
So are cryptocurrency ETFs a thing now? Well, so far the SEC has only approved spot ETFs for Bitcoin. Other cryptocurrencies, or altcoins, will have to wait and hope. Many enthusiasts believe Ethereum has a good shot at getting approval soon, and approving Bitcoin might indeed open the door for some other coins to find approval. Only time will tell, but even if it’s only Bitcoin for now, what’s good for Bitcoin has generally proven to be good for the crypto market overall.
