As the leading coin in the world of cryptocurrency, Bitcoin has swept the world by storm in the past few years. With an unprecedented growth of 6.7 million percent in a mere decade, the token has marked itself as one of the hottest sectors in the investment world and generated both millionaires and millions of controversies. Yet, regardless of media attention, the cryptocurrency has had little impact on the economic world until now. Thanks to new rulings by the Securities and Exchange Commission (SEC), Bitcoin, along with the entire crypto market, has stepped into the traditional markets of America, bringing both profitability and uncertainty.
On October 19th, in a major ruling by the SEC, Bitcoin was approved to enter the stock exchanges of Wall Street in the form of an exchange-traded fund (ETF). An alternative investment to buying and selling individual assets, ETFs instead track the larger performance of a group of assets with something in common. In the case of bitcoin, the ETF mirrors the price of the token, rising and falling alongside the cryptocurrency. Unlike owning a bitcoin, however, the ETF allows investors to buy the asset without getting involved in the complex exchange process, storage, and security procedures typically needed from a bitcoin owner.
Along with opening the cryptocurrency to the public, the ETF also gives more investors access to a wider option of investment strategies not available when holding the raw currency—specifically, the option to short the asset, a method of gaining profit from depreciating assets. ETFs are also a more comfortable vehicle to the investment world compared to cryptocurrencies. According to Micheal Sapir, CEO of the investment firm Proshares, the fund “will open up exposure to bitcoin to a large segment of investors [who] do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider.”
Despite all of its advantages, the SEC’s approval of the ETF has worrying implications. Government attention to bitcoin may increase exposure to the general economy, yet it also heralds the possibility of regulation. Not only would this decrease volatility, which accounts for a large part of bitcoin’s demand, but it also conflicts with the founding principles of crypto itself. The very purpose of cryptocurrency is to serve as a platform that is outside of the government and typical financial institutions, something that the bitcoin ETF does not possess. The current involvement of these institutions may push the market forward, yet may also become a result of manipulation.
The introduction of bitcoin into the investing world is still in its incipient stages. It seems inevitable that the two largest areas of investment would collide. However, the final result is still yet to be decided. ETFs represent only a singular method of connection among many, but one thing is clear: whether as an ETF or as a coin, it seems that crypto is here to stay.
By: Raymond Ge