More than $4 billion of a newly approved investment product linked to Bitcoin changed hands on the first day of trading Thursday, as cryptocurrency enthusiasts celebrated a watershed moment for the industry.
Eleven of the products, known as exchange-traded funds or ETFs, began trading on popular platforms like the Nasdaq a day after federal regulators cleared them, creating an easier way for investors to bet on cryptocurrency markets. Major financial companies, including asset managers like BlackRock and Fidelity, offer ETFs.
The first volume was impressive., analysts said, comparing favorably to other ETF debuts. But it could take months to assess the impact on the cryptocurrency industry, which is still recovering from a recent series of market crashes and high-profile corporate bankruptcies. Initial market data did not show how many new investments flowed into Bitcoin funds; Some of the trading activity may have arisen from investors buying shares and quickly selling them.
“It's not a one-day event,” said Sandy Kaul, who heads the digital assets division of Franklin Templeton, a company that offers ETFs. “Six months is a really good time to understand: Is this a transformative product?”
The price of Bitcoin briefly rose to $49,000 on Thursday before falling to $46,000. Optimism that ETFs were close to being approved by the Securities and Exchange Commission sent the price of Bitcoin up more than 60 percent in recent months to its highest levels since the market imploded in 2022.
The approvals were a major victory for the crypto industry as it prepares for a series of legal battles with the federal government. The SEC has sued Coinbase, the largest US cryptocurrency exchange, and several other major companies, arguing that they have illegally traded unregistered securities, a potential existential threat to the industry.
In a statement announcing the authorization of the ETFs, Gary Gensler, chairman of the SEC, said the agency did not “approve or endorse Bitcoin.” He said most cryptocurrency trading platforms break the law and “often have conflicts of interest.”
Historically, anyone who wanted to invest in Bitcoin or another cryptocurrency had to store the asset in specialized wallets or open accounts on crypto exchanges such as Coinbase and Binance, which have faced regulatory scrutiny. Many investors have struggled to understand the complexities of these online platforms or have been frustrated by bugs, hacks, and high transaction fees.
An ETF offers a simpler option. Instead of buying Bitcoin directly, with all its risks and drawbacks, investors buy shares of an ETF that holds the currency. The funds are offered on traditional stock exchanges, in a format that many wealth managers have adopted.
Cryptocurrency enthusiasts have fought for a Bitcoin ETF for more than a decade, predicting the products would attract billions of dollars in new investments. But the SEC repeatedly rejected those efforts, arguing that cryptocurrency markets were rife with fraud.
The situation changed in August when the federal appeals court in Washington ruled that the SEC's rejection of an application by cryptocurrency company Grayscale Investments was “arbitrary and capricious.” On Wednesday, Gensler said the ruling had effectively given him no choice but to approve the products.
“Grayscale deserves a lot of credit for today,” said Coinbase CEO Brian Armstrong. aware the X of Wednesday. “Absolute legends.” Coinbase is working with several companies that offer ETFs, including BlackRock, to store the Bitcoin contained in the funds.
The 3-2 vote to approve Bitcoin products also exposed divisions within the SEC over cryptocurrency regulation. Gensler sided with two Republican commissioners over the objections of two Democratic commissioners.
In a statement, one of the Democrats, Caroline Crenshaw, called the approvals a dangerous mistake that put the agency “on a misguided path that could further sacrifice investor protections.” She cited illegal cryptocurrency price manipulation as well as rampant fraud that led the industry to a crisis in 2022.
Hester Peirce, a Republican commissioner who often clashes with Gensler, also criticized the SEC's handling of Bitcoin applications, saying the agency had alienated the industry and created market confusion.
“We wasted a decade of opportunities to do our jobs,” he wrote. “Today's order does not undo the many harms created by the unequal treatment of Bitcoin spot products.”
The reaction in the financial industry was not universally positive. Vanguard, the investment management company, said it would not allow its clients to invest in Bitcoin ETFs.
“These products do not align with our offering focused on asset classes such as stocks, bonds and cash, which Vanguard views as the building blocks of a well-balanced long-term investment portfolio,” said spokesperson Karyn Baldwin.
For now, the approvals have restored some of the enthusiasm the cryptocurrency industry showed in 2021, the last time prices soared. On Wednesday night, cryptocurrency enthusiasts gathered for a party at Pubkey, a Bitcoin-themed bar in Manhattan. Franklin Templeton's official X account changed her profile picture to include laser eyes, a popular Bitcoin meme.
“I've never seen so much obsession with anything ETF-related,” said Steven McClurg, chief investment officer at Valkyrie, a company offering the new Bitcoin product. “It's very exciting to have a new type of asset class making its way into the traditional financial system.”
He has enormous expectations for the market. McClurg predicted that the price of Bitcoin would skyrocket to over $150,000 by the end of the year.
