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NEW YORK — Nearly a dozen new bitcoin funds began trading in U.S. markets for the first time Thursday, providing increased access to the cryptocurrency for everyday investors.
The new exchange-traded funds give investors an asset that closely tracks the price of bitcoin.
The Securities and Exchange Commission approved 11 funds from asset managers such as Blackrock, Invesco and Fidelity late Wednesday. The wave of approvals may work in your favor as fund managers seek to attract investors by competing on fees.
Besides being a win for the fund managers, the approvals are also a win for the cryptocurrency industry, which has needed a victory after nearly two years of turmoil, including the failure of several crypto firms, most notably FTX in November 2022.
The SEC's approval, however, was lukewarm at best. Gary Gensler, the agency's chairman, has repeatedly said cryptocurrencies need more regulation and investor protections.
"Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto," Gensler said.
The regulatory greenlight had been anticipated for several months, however, and the price of bitcoin has jumped about 70% since October on the belief that bitcoin exchange-traded funds will drive up demand for the cryptocurrency.
Bitcoin rose 2% in early trading Thursday, and trading in the new exchange-traded funds was mixed.
Some analysts think that exchange-traded funds may help stabilize crypto prices by broadening their use and potential audience. But many remain concerned that crypto exchange-traded funds will place too much risk and volatility into Americans' retirement accounts.
"The notorious price volatility of bitcoin, as well as its fluctuating values against stablecoins and other cryptocurrencies, could expose mainstream investors to a less familiar spectrum of investment risks," said Yiannis Giokas, senior director of Moody's Analytics.
Here are some things to know about bitcoin exchange-traded funds.
Why all the excitement over bitcoin exchange-traded funds?
An exchange traded fund is an easy way to invest in something or a group of things, like gold or junk bonds, without having to take possession of those assets. Unlike traditional mutual funds, exchange-traded funds trade like stocks, which means they can be bought and sold throughout the day.
Since the inception of bitcoin, anyone wanting to own one would have to buy it. That in turn would mean either having to learn what a cold wallet is or having to open an account at a crypto trading platform like Coinbase or Binance.
A spot bitcoin exchange-traded fund could open the door to many new investors who don't want to take such extra steps.
The price of bitcoin has already soared in anticipation of the SEC's approval, with bitcoin trading at $47,500 Thursday, up from around $27,000 in mid-October. The price had sunk as low as $16,000 in November of 2022 following the implosion of the crypto exchange FTX.
How would the exchange-traded funds work?
New bitcoin exchange-traded funds will perform like the SPDR Gold Shares exchange-traded funds, which allows anyone to invest in gold without having to find someplace to store a bar or having to protect it. It's the same reason some people invest in the SPDR Bloomberg High Yield Bond exchange-traded funds, which lets investors simply buy one thing instead of the more than 1,000 low-quality bonds that make up the index.
The Bitcoin Strategy exchange-traded fund has been in existence since 2021, but it holds futures related to bitcoin, not the cryptocurrency itself. Those prices do not track as closely as a straight-up bitcoin exchange-traded fund.
The SEC said it gave approval to 11 exchange-traded funds, but more are certain to apply for trading in the coming months.
What are the disadvantages of an exchange-traded fund?
Longtime crypto fans might object. Cryptocurrencies like bitcoin were created in part due to mistrust of the traditional financial system. Wall Street would become an intermediary between investors and cryptocurrency in the case of exchange-traded funds.
Exchange-traded funds also charge fees, though they tend to be relatively low compared with the overall financial industry. These fees are shown through what's called the expense ratio, which indicates how much of a fund's assets the exchange-traded fund will take each year to cover its costs.
What concerns should investors have?
An exchange-traded fund will not put actual cryptocurrency into investors' accounts, meaning that they cannot use it. Also, an exchange-traded fund would not provide investors with the same anonymity that crypto does, one of the big draws for many crypto investors.
The biggest concern for an investor in one of these exchange-traded funds is the notorious volatility in the price of bitcoin.
Despite failing to catch on as a replacement for fiat, or paper, currencies, bitcoin soared near $68,000 in November of 2021. A year later it plunged below $20,000 as investors shunned riskier assets and a series of company blowups and scandals shook faith in the crypto industry.
Even as regulators and law enforcement crack down on some of crypto's bad actors, like Sam Bankman-Fried of FTX, the industry still has a "Wild West" feel to it.
A hack of the SEC's X account this week, when a fake tweet claimed the exchange-traded funds had been approved, sent prices soaring and raised questions about both the ability of scammers to manipulate the market and the SEC's ability to stop them.
