This is an adapted article first published by Meduza. Please care to check the links to sources inside the original text. 

What happened?

The U.S. Securities and Exchange Commission (SEC), traditionally critical of cryptocurrency, has allowed the registration of Exchange-Traded Funds (ETFs) that directly invest in Bitcoin (BTC). This decision is deemed groundbreaking for the market as it will provide millions of retail investors with easy access to cryptocurrency investments. Trading of spot Bitcoin ETFs commenced on 11 January, just one day after the official approval from the SEC. In the first half-hour alone, trading volume exceeded 1.2 billion dollars.

What is an ETF?

ETFs closely resemble collective investment funds. In this scheme, a group of investors pools their funds and collectively invests in various assets (stocks, bonds, real estate) to enhance profits. Typically managed by a specific company led by financial professionals, a traditional form of collective investment is the mutual fund. Shares represent a stake in the collective investment portfolio, and investors acquire them from the managing company, banks, or other investors. If the share price increases, investors make a profit upon selling, and earnings can be withdrawn in the form of dividends.

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ETFs are collective investment funds with shares that can be traded on the stock exchange. The fund purchases assets with investors' money and also issues its own shares. Over the past decades, ETFs have become one of the most popular forms of investment in the U.S. due to their convenience and return benefits. The total assets under ETF management exceed seven trillion dollars.

Why is the launch of Bitcoin ETFs so important?

Bitcoin ETFs will provide easy access to cryptocurrency for both retail investors and major players. Until now, regulated financial institutions in the U.S., such as pension funds, couldn't directly invest in cryptocurrencies, which were considered niche assets. Other investors may have been deterred by unfamiliar infrastructure, a high number of fraudsters, and the SEC's unclear stance.

A hearing on crypto in the Senate in 2019. Credit: U.S. Senate

Now, both major investors managing trillions of dollars and retail investors can allocate a portion of their assets to Bitcoin through ETFs. This could potentially lead to an overall increase in the value of cryptocurrencies. According to a report from the crypto firm Galaxy Digital, Bitcoin ETFs could bring the industry at least 14.4 billion dollars from major institutional investors in the first year alone.

The SEC's decision holds symbolic significance as well: by approving ETFs, the regulator has officially classified Bitcoin as a recognized asset class. This marks a crucial step in acknowledging Bitcoin as a tangible asset, enhancing its legitimacy and instilling trust in the cryptocurrency.

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While crypto enthusiasts never doubted the value or tangibility of BTC, SEC approval significantly boosts the legitimacy and trust in cryptocurrency.

This is likely to have a ripple effect on the entire blockchain industry, thrusting it into the global spotlight like never before. Bitcoin may find its way into model portfolios of major investment houses, such as J.P. Morgan.

Which companies have already launched ETFs?

The SEC approved all 11 applications for registering Bitcoin ETFs. Exchange-traded funds have been launched by well-known crypto companies and players from the traditional financial market.

One of the world's largest investment firms, BlackRock, received approval for ETF launch, along with Fidelity, Franklin Templeton, and ARK Invest, managed by renowned investor Cathy Wood.

Among the crypto companies, Bitcoin funds have been registered by Grayscale, Hashdex, and Valkyrie.

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BlackRock's entry into the race for the first Bitcoin ETF in June 2023 marked a significant event for the crypto industry. From that moment until the end of the year, the price of Bitcoin increased by approximately 60%, reaching 42,000 dollars. Prior to this, its value had not exceeded 30,000 dollars throughout the year.

However, not all financial companies share the optimism of crypto enthusiasts. Users on X (formerly Twitter) complain about the investment giant Vanguard, which did not allow its clients to purchase shares of SEC-approved funds. Vanguard representatives were quoted as saying that Bitcoin ETFs investments “did not align with the company's philosophy.”

Why did the SEC resist the emergence of Bitcoin ETFs in the past?

The SEC is known for its skeptical stance towards cryptocurrency, often criticizing the non-traditional financial market. The founders of the Gemini exchange, the Winklevoss brothers, proposed launching Bitcoin ETFs ten years ago. However, the SEC rejected their application, and year after year, similar proposals faced denials.

SEC Chiar Gary Gensler has been a stubborn opponent of the crypto industry. Credit: Fox Business

Market pressure on officials continued to grow. In 2021, the SEC, for the first time, yielded to market demands and allowed the registration of ETFs trading Bitcoin futures. However, at that time, the decision resembled more like a compromise: SEC did not allow the direct trading of cryptocurrencies on exchanges, and funds had to manage complex and expensive Bitcoin futures. Investors received an instrument that allowed only indirect investment in Bitcoin through the exchange.

What was the fuss about the fake SEC approval of Bitcoin ETFs on social media?

On 9 January, a false message about the approval of spot Bitcoin ETFs appeared on the SEC's X account. The post was live for less than 20 minutes and garnered about a million views, causing the price of Bitcoin to rise by more than a thousand dollars, reaching a two-year high of around 48,000 dollars. After the news denial, Bitcoin fell below 46,000.

A preliminary investigation by X revealed that hackers gained access to the phone number linked to the SEC account. The FBI is now investigating the breach.

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The hacking incident made the SEC leadership the subject of jokes even in reputable media. Bloomberg journalists noted that Gary Gensler, a crypto skeptic often warning about the risks of fraud in cryptocurrency, became a victim of hacking. Financial Times published an article titled "Bitcoin ETFail" with the subtitle "hahahahaha wot."

How did cryptocurrencies react to the [true] SEC's decision?

The SEC's decision was not a surprise for investors, who were preparing for approval, leading to a rise in Bitcoin prices in recent weeks. Bitcoin likely had exhausted its growth potential, especially after the premature fake news incident, and the official approval had little impact. Since the beginning of the year, the price of BTC has increased by almost 10%, then weakened again, and was spotted around 42,600 dollars as of the time this story was published.

Credit: Coinmarketcap

The second most popular cryptocurrency, Ethereum, has seen a more confident rise thanks to the commission's decision. Since 9 January, its price has increased by 16%, reaching 2,600 dollars. Investors hope that the SEC will soon allow the registration of ETFs for Ethereum as well.

What to expect next?

In the long term, the SEC's decision could significantly change the cryptocurrency market. The launch of ETFs could significantly increase demand for Bitcoin. Standard Chartered analysts suggest that the price of Bitcoin could jump to 200,000 dollars by the end of 2025.

The approval of Bitcoin ETFs will impact not only Bitcoin itself but the entire crypto industry. Analysts at CryptoQuan estimate that the total market capitalization of all cryptocurrencies could increase by a trillion dollars. According to CoinGecko, the current total market capitalization is 1.9 trillion dollars.

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