Bitcoin ETFs: will the SEC's green light disrupt the crypto market?

Investing in Bitcoin from a securities account

The long-awaited news dropped on the evening of January 10: the Securities and Exchange Commission (SEC), the American stock market watchdog, approved the introduction of 11 Spot Bitcoin ETFs on traditional financial markets. This decision marks a historic moment after a decade of rejecting these products.

But what is a Bitcoin ETF? An ETF, or Exchange-Traded Fund, is an investment fund that is traded on the stock exchange like an ordinary share. In the case of Bitcoin ETFs, they allow investors to hold shares of a fund that tracks the performance of Bitcoin, the most well-known cryptocurrency.

The SEC's approval of Bitcoin ETFs therefore has significant implications for investors looking to incorporate cryptocurrencies into their security portfolios. They will no longer be obligated to buy them on platforms, some of which have recently weathered scandals. They can hold them via index funds, purchased the traditional way, and lodged in their regular securities account (CTO).

Several industry players have filed applications for Bitcoin ETF approval with the SEC. Notable candidates include BlackRock, ARK Invest, Invesco, and Fidelity Investments. Their first ETFs should be available on Wall Street in the coming hours.

Risks always present

With the introduction of Bitcoin ETFs, individuals can now purchase shares of ETFs from their bank or their favorite trading platform, just as they would with shares of companies listed on the stock exchange. This greatly simplifies the investment process and offers a better-regulated option by law.

However, the risks associated with investing in the star cryptocurrency are not diminished. The value of Bitcoin is still largely speculative at this stage. The validation of ETFs should even reinforce this fact, at least until cryptos find their place in the real economy (if ever they can). Therefore, Spot Bitcoin ETFs will likely be labelled as some of the riskiest assets on the market and will thus be reserved for diversification.

An increase in the value of Bitcoin (and other cryptos) on the horizon

The approval is also likely to have an impact on the value of Bitcoin itself. Until now, developments in the value of cryptocurrency have been largely driven by private investments. The arrival of asset management giants could change the game.

In order to replicate Bitcoin's performance, asset management companies will have to massively invest in cryptocurrency. The increase in institutional demand could lead to a sustained increase in demand and price. For now, the announcement has had little effect on the market. But in the longer term, it should also be kept in mind that the supply of Bitcoins is limited to 21 million tokens: the scarcity of tokens could also drive up prices.

Some investors thus estimate that Bitcoin could exceed $100,000 in 2024. A hypothesis that remains purely speculative as cryptocurrencies are volatile. While it has increased by 160% in 2023, it had collapsed by 75% in 2022! Others see the intrusion of "TradFi" into this world that wanted to be "outside the system" as a negative signal about the future of this sector.

Finally, one of the important parameters of valuation remains the absence of global regulation of cryptos. While the SEC, as an institution, has opened a path toward regularization, many countries still need to make decisions regarding the regulatory framework of crypto-assets. The path toward "normalization" will therefore be long.

List of Bitcoin Spot ETFs authorized by the SEC