Federal regulators on Wednesday approved a new financial product that tracks the price of Bitcoin, a historic moment for the cryptocurrency industry that advocates hope will increase investment in the technology.
The Securities and Exchange Commission authorized 11 applications to offer exchange-traded funds linked to Bitcoin, a potentially easier way for people to invest in digital assets. Some of the world's largest financial firms, including asset managers BlackRock and Fidelity, were approved to offer the products, known as ETFs, which could begin trading Thursday on traditional platforms such as the Nasdaq.
The approvals were hailed as a sign that major financial institutions remain willing to deal in digital currencies even after 18 months of market crashes and high-profile bankruptcies. Since the fall, the price of Bitcoin has risen more than 60 percent as traders bet that the approval of new crypto products would give the industry a imprimatur of regulatory legitimacy, attracting new investments from professional wealth managers and amateur traders.
Bitcoin's price soared on Tuesday after a post appeared on the SEC's official X account announcing the approval of ETFs, but quickly fell when SEC Chairman Gary Gensler said the agency's account had been pirated
Cryptocurrency enthusiasts only had to wait until Wednesday, when the SEC cleared the products in a regulatory filing. The price of Bitcoin rose slightly after the announcement.
In a statement, Gensler, a fierce critic of fraud and volatility in cryptocurrency markets, said the approvals should not be interpreted as an endorsement of the technology. “We do not approve or endorse Bitcoin,” he said. “Investors should be cautious of the myriad risks associated with Bitcoin and products whose value is tied to cryptocurrencies.”
Still, the long-awaited authorizations introduce a pillar of the conventional financial system into the experimental world of digital money.
ETFs, widely offered by financial firms such as Charles Schwab and Vanguard, are baskets of assets divided into stocks that can be bought and sold on the open market, a form of investment popular among wealth managers who control trillions of dollars in capital.
Instead of storing Bitcoin in online wallets, Bitcoin ETF investors would own shares of funds containing the digital currency. Investors would gain exposure to the market without some of the risks and drawbacks historically associated with cryptocurrencies, a loosely regulated technology that allows people to exchange digital funds outside the oversight of banks or other traditional intermediaries.
“It creates a bridge to the traditional financial market,” said James Seyffart, a Bloomberg Intelligence analyst who tracks ETFs. “Long term, I think the money is going to come.”
Cryptocurrency advocates had pushed for the introduction of a Bitcoin ETF for years, hoping it would accelerate the adoption of cryptocurrencies more broadly. In 2021, the SEC approved funds that track Bitcoin fluctuations without owning the currency itself. But the agency argued that a fund containing Bitcoin would pose big risks to consumers, citing illegal manipulation of cryptocurrency prices, among other issues.
Those arguments failed in court. In August, the SEC lost a legal battle with crypto asset manager Grayscale Investments, one of the firms that bid to offer the product, paving the way for a Bitcoin ETF.
Bitcoin's price soon skyrocketed, reaching nearly $47,000 this month, its highest value since a series of bankruptcies led the industry to collapse in 2022.
On social media, there was speculation about the timing of the SEC's approval. Tuesday's false announcement sparked 15 minutes of celebration before Gensler intervened on X. An official X account for the platform's security resources. saying the agency had not enabled two-factor authentication, a common digital security tool, to protect your account.
Anticipation for new crypto products had been building for months. In November, BlackRock filed paperwork to create an ETF that would track the price of Ether, the second-most valuable cryptocurrency behind Bitcoin, generating more excitement.
But skeptics argued that the new products would not solve any of the fundamental problems of cryptocurrencies, such as fraud and volatility. A market crash in 2022 drained the savings of millions of ordinary investors. Critics said many crypto companies didn't offer much practical utility.
In a public letter last week, nonprofit advocacy group Better Markets said the approval of Bitcoin ETFs would be a “historic mistake that would almost certainly cause massive harm to investors.” Others have argued that the products will not provide much of a boost to cryptocurrency prices.
The growing prominence of companies like BlackRock in the cryptocurrency world also runs counter to the renegade industry's initial promise to provide an alternative to traditional financial giants.
“There is so much irony and hypocrisy,” said John Stark, a former SEC official and longtime cryptocurrency critic.
In his statement Wednesday, Gensler said the August court ruling had made approving ETFs “the most sustainable path forward.” But he said the decision should “in no way” indicate that the SEC was prepared to authorize similar products tied to other cryptocurrencies. He called Bitcoin a “speculative and volatile asset” used in money laundering, terrorist financing and other crimes.
Still, the industry celebrated.
“Today will be remembered in the history of cryptocurrencies,” said Richard Teng, CEO of Binance, the world's largest cryptocurrency company. aware in X.
Brad Garlinghouse, CEO of crypto company Ripple, saying about X that “the importance of this moment cannot be overstated.” He added: “Today's news is further legitimization of cryptocurrencies as an asset class.”
Companies authorized to offer Bitcoin ETFs (which also include Grayscale, Franklin Templeton, and several others) have already begun competing for customers. Some of them adjusted the management fees they plan to charge for Bitcoin ETFs this week, seeking to undermine competition. BlackRock reduced its fee to 0.25 percent from 0.3 percent.
