Federal regulators on Wednesday approved a new financial product that tracks the price of Bitcoin, a historic moment for the cryptocurrency industry that supporters hope will increase investment in the technology.
The Securities and Exchange Commission has approved 11 applications to offer exchange-traded funds linked to Bitcoin, a potentially simpler way for individuals to invest in digital assets. Some of the world’s biggest financial firms, including asset managers BlackRock and Fidelity, have been approved to offer the products, called ETFs, which could begin trading as early as Thursday on traditional platforms like Nasdaq.
The approvals were hailed as a sign that traditional financial institutions remain willing to trade digital currencies even after 18 months of stock market crashes and high-profile bankruptcies. Since the fall, the price of Bitcoin has surged more than 60%, with traders betting that approval of new crypto products would give the industry regulatory legitimacy, attracting new investments from professional wealth managers and amateur traders.
Bitcoin’s price rose Tuesday after a message appeared on the SEC’s official agency had been hacked.
Crypto enthusiasts only had to wait until Wednesday, when the SEC cleared the products in a regulatory filing. The price of Bitcoin increased slightly after the announcement.
In a statement, Mr. Gensler, a fierce critic of fraud and volatility in crypto markets, said the approvals should not be interpreted as an endorsement of the technology. “We have neither endorsed nor endorsed Bitcoin,” he said. “Investors should remain cautious of the myriad risks associated with Bitcoin and products whose value is tied to crypto.”
Yet the long-awaited approvals bring a pillar of the traditional financial system into the experimental world of digital currency.
Widely offered by financial firms like Charles Schwab and Vanguard, ETFs are baskets of assets divided into stocks that can be bought and sold on the open market – a popular form of investment among wealth managers who control billions of dollars of capital.
Rather than storing Bitcoin in online wallets, investors in Bitcoin ETFs would hold shares in funds containing the digital currency. Investors would be exposed to the market without some of the risks and drawbacks historically associated with crypto, a lightly regulated technology that allows people to trade digital funds outside the supervision 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. “In the long run, I think the money will come in.”
Crypto proponents have been calling for the introduction of a Bitcoin ETF for years, hoping it would accelerate the wider adoption of cryptocurrencies. In 2021, the SEC approved funds that track Bitcoin’s fluctuations without holding the currency itself. But the agency argued that a fund containing Bitcoin would pose big risks for consumers, citing illegal manipulation of crypto prices, among other concerns.
These arguments failed in court. In August, the SEC lost a legal battle with crypto asset manager Grayscale Investments, one of the companies that applied to offer the product, paving the way for a Bitcoin ETF.
The price of Bitcoin quickly skyrocketed and this month reached nearly $47,000, its highest value since a series of bankruptcies plunged the industry into collapse in 2022.
On social media, speculation raged about the timing of an SEC approval. Tuesday’s fake announcement sparked 15 minutes of celebration before Mr. Gensler weighed in on X. An official X account for the platform’s security resources said the agency had not enabled two-factor authentication, a common digital security tool, to protect its account.
Anticipation for new crypto products had been building for months. In November, BlackRock filed paperwork to create an ETF tracking the price of Ether, the second most valuable cryptocurrency behind Bitcoin, sparking even more excitement.
But skeptics claimed the new products would not solve any of crypto’s fundamental problems, like fraud and volatility. A stock market crash in 2022 has emptied the savings of millions of ordinary investors. Critics said many crypto companies didn’t offer much practical utility.
In a public letter last week, the nonprofit advocacy group Better Markets said approving Bitcoin ETFs would be a “historic mistake almost certainly resulting in massive harm to investors.” Others argued that the products would not increase crypto prices much.
The growing prominence of companies like BlackRock in the crypto world also flies in the face of the renegade industry’s initial promise of providing an alternative to traditional financial giants.
“There is so much irony and hypocrisy,” said John Stark, a former SEC official and longtime crypto critic.
In his statement Wednesday, Mr. Gensler said the court’s August ruling 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 related 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 go down in crypto history,” Richard Teng, chief executive of Binance, the world’s largest crypto company, job on X.
Brad Garlinghouse, chief executive of crypto company Ripple, said on X that “the importance of this moment cannot be overstated.” He added: “The news today is an increased legitimization of crypto as an asset class. »
Companies licensed to offer Bitcoin ETFs – which also include Grayscale, Franklin Templeton and several others – have already started competing for customers. Some of them this week adjusted the management fees they plan to charge for Bitcoin ETFs, aiming to reduce competition. BlackRock lowered its fees from 0.3% to 0.25%.