Cryptos
Bitcoin ETF 2024: The SEC’s Pending Decision
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En résumé
Explore the impact of the SEC's Jan 2024 decision on Bitcoin ETFs: key benefits, risks, and potential market effects for investors.
A Bitcoin ETF is a regulated investment vehicle that allows you to get exposure to the price movements of Bitcoin (BTC) without having to hold BTC or store it directly, enabling investors of all kinds, including institutional investors, to invest in Bitcoin.
Although Bitcoin ETFs have generated notable interest from institutional and retail investors, the Securities and Exchange Commission (SEC) has yet to approve a spot Bitcoin ETF in the US. However, the SEC now faces a January 2024 deadline to either approve or reject the recent applications for spot Bitcoin ETF products.
In this guide, we’ll explore what a Bitcoin ETF is, the significance of the January 2024 deadline, and the implications of a Bitcoin ETF for investors and the overall crypto market.
Before You Dive In
Before we delve into the upcoming Bitcoin ETF decision by the SEC, it’s important to understand what Bitcoin is, and that you can also buy Bitcoin directly using a wallet such as Trust Wallet.
Trust Wallet, which can of course be used as your secure Bitcoin wallet, can be downloaded as a mobile app, or you can install the Trust Wallet Extension for your desktop browser. For this guide, we'll focus on creating a new wallet using the Trust Wallet mobile app.
Step 1: Get the most updated version of Trust Wallet
Below you’ll see the steps to create a new wallet, but you could just as easily import an existing Web3 wallet to Trust Wallet, if that’s your preference.
To create a new wallet:
Download, install and then open Trust Wallet
Choose “Create a new wallet”.
Choose your backup option, or you can optionally postpone the backup process by choosing “Skip”.
Start using Trust Wallet.
Step 2: Buy crypto using your Trust Wallet
Select the “Buy” button, from the wallet’s Home screen.
Choose Bitcoin (BTC), and enter the amount you wish to purchase.
Select the third party provider & payment method you’d like to use.
Select “Buy BTC”, and then follow the steps to complete the purchase.
What is Bitcoin?
Bitcoin emerged in 2008, created by an entity under the alias Satoshi Nakamoto. This virtual currency differs from conventional currencies like dollars or euros, as it's purely digital and operates on a decentralized system. This means no central authority, such as a central bank, controls it. Bitcoin transactions are confirmed by a network of computers and logged on a public ledger known as the blockchain, ensuring transparency and security in all transactions.
A key aspect of Bitcoin's system is the utilization of cryptography, a technique for securing information by transforming it into an unreadable code. This cryptographic method is employed in Bitcoin transactions to verify that they are initiated by their legitimate owners, enhancing security and thwarting fraudulent activities.
Further, Bitcoin's decentralized framework is upheld by network participants called "miners." Bitcoin mining involves using high-powered computers to solve complex mathematical problems. These problems help to confirm and secure transactions on the blockchain. Once recorded, these transactions become nearly immutable, providing robust protection against alterations or cyber threats. The combination of decentralization and cryptographic security positions Bitcoin not just as an alternate currency, but as an inherently more secure and transparent medium for executing transactions.
Learn more about Bitcoin:
What Is a Bitcoin ETF?
An exchange-traded fund (ETF) is a financial product that is publicly traded on securities exchanges, similar to how stocks are traded, and tracks the performance of an underlying asset or a basket of assets. An ETF can track the price of a single asset, like gold or oil, or a mix of assets, like an index of stocks.
ETFs allow investors to gain exposure to the value of an underlying asset without directly owning it. Crypto ETFs, such as Bitcoin ETFs, work similarly to traditional ETFs. They are traded on traditional stock exchanges, making it easier for traditional investors to participate in the crypto market.
However, Bitcoin ETFs differ from traditional ETFs as they track the performance of BTC as the underlying asset. This way, investors get exposure to Bitcoin and can speculate on its price movement without owning the asset.
Bitcoin ETFs provide a more commodious and regulated approach to investing in BTC. Let’s look at some benefits and risks associated with Bitcoin ETFs for investors below:
Benefits of Bitcoin ETFs
Accessibility: Bitcoin ETFs are traded on traditional stock exchanges, similar to individual stocks, and not on crypto exchanges. Therefore, they are accessible to a broad range of ordinary investors who might not have the technical expertise to invest directly in Bitcoin or who can’t invest directly in BTC for regulatory compliance reasons.
Convenience: Bitcoin ETFs can be attractive to skeptical investors who don’t want to buy or manage digital currencies due to concerns about regulatory issues, security, and technical complexities, like managing crypto wallets or navigating crypto exchanges.
Diversification: Investing in Bitcoin ETFs means adding a new asset class to your investment portfolio, which can help diversify your investment holdings. This helps lower the overall risk linked to your portfolio while potentially increasing long-term returns.
Liquidity: Bitcoin ETFs offer increased liquidity as investors can purchase and sell Bitcoin through the usual brokerage accounts. They also have the potential to drive Bitcoin adoption. Professional Management: Bitcoin ETFs are managed by experienced fund managers who are responsible for managing the underlying asset. Investors are, therefore, able to enjoy a more hands-off approach, making it less time-consuming to invest in BTC.
Risks of Bitcoin ETFs
Counterparty Risk: Investing in a Bitcoin ETF means relying on a third party to fulfill their agreed-upon obligations. If the counterparty fails to fulfill its obligations, it can lead to losses for the investor.
Liquidity Risk: Bitcoin ETFs can suffer from low liquidity in comparison to traditional assets, like bonds or stocks. Thus, investors can have difficulty accessing their funds or selling their shares on time.
Market Volatility: Because of the high level of volatility, the Bitcoin price can greatly swing upwards or downwards in a short time, resulting in huge losses for investors.
Regulatory Risk: Crypto regulations aren’t finalized in the U.S., which means that some regulatory risk remains even if Bitcoin ETFs are approved in January, which could affect investor holdings if a crypto-negative regulatory framework comes.
The Significance of the January 2024 Deadline
Earlier this year, several asset management firms, like BlackRock, Fidelity, Grayscale, and Invesco, applied for a Bitcoin ETF through the SEC. The SEC rejected the Grayscale application to change its Bitcoin Trust into an ETF. In August 2023, Grayscale sued and won the case against the SEC. The win saw more asset managers, such as Hashdex, submit crypto ETF applications to the SEC.
ARK Invest first filed for a spot in Bitcoin ETF dubbed ARK 21Shares Bitcoin ETF in partnership with 21Shares back in June 2021. But since 2021, the SEC has either rejected several applications to approve a spot Bitcoin ETF, arguing that the crypto market can be easily manipulated, or have kept postponing the final verdict of the ARK 21Shares Bitcoin ETF.
In June of this year, the SEC extended the date by which it would approve the ARK 21Shares Bitcoin ETF by 180 days. This meant the SEC was supposed to give a ruling by November 11, 2023. The SEC, however, said it had the leeway to extend the approval deadline by another 60 days and thus postponed the decision date to January 10, 2024.
Thus, the US regulator can only delay a decision on the ARK 21Shares Bitcoin ETF until January 10, 2024, due to the 240-day extension window.
With over ten Bitcoin ETF applications submitted to the SEC, experts now believe that the SEC will give a general ruling on whether they will approve or reject the filings of the various Bitcoin ETF products, including that of the ARK 21Shares Bitcoin ETF, by January 10, 2024.
Experts also believe that the SEC wants to approve all the pending crypto ETFs at once to ensure fair play, as no asset manager will have the upper hand over the other.
Having said that, here are the official deadlines for each outstanding spot Bitcoin ETF application:
The January deadline is critical for the cryptocurrency market for several reasons. For starters, a Bitcoin ETF will allow ordinary investors to gain exposure to digital assets, such as BTC, without owning them. Moreover, the crypto market has long desired a way to grow Bitcoin’s adoption.
So far, the SEC has held various meetings with different asset firms that have submitted their application, with some even refiling their initial applications to include various updates.
Implications for Investors and the Market
The approval of a Bitcoin ETF will make the cryptocurrency more accessible to a wider pool of investors. This will likely increase the adoption of Bitcoin as an investment asset.
So far, with the Bitcoin ETF approval hype, the Bitcoin price has surged to trade at over $42,000 as of early December, according to data on CoinMarketCap.
Between the awaited Bitcoin halving event, a pending Bitcoin ETF approval from the SEC, and the current ongoing crypto market recovery, many experts believe that this mix of factors will potentially cause Bitcoin’s price to rally in 2024.
If the SEC were to reject the Bitcoin ETF applications currently in review, it would push the next deadline to April 2024. Over the last three or so years, the SEC has rejected various Bitcoin ETF applications, citing the lack of a regulated crypto market that is then open to market manipulation.
The SEC’s decision - on whether to approve or reject the filed Bitcoin ETF applications - will impact the broader crypto market. While approval is expected to bolster the price of Bitcoin and other cryptocurrencies, it would also help to grow the adoption of Bitcoin and eliminate the barrier to entry for most traditional investors looking to invest in digital assets.
On the other hand, a rejection of the current applications could impact the Bitcoin price and other digital currencies.
As the much anticipated SEC crypto ETF decision nears, the crypto community believes that the SEC’s decision will significantly influence future regulations and investment in cryptocurrencies. For instance, it would re-emphasize the need to build a globally accepted regulatory framework for all cryptocurrencies to instill investor confidence.
Conclusion
As the SEC January 2024 deadline draws near, we can only anticipate their decision’s impact on the overall crypto market. For beginner investors, approval could boost confidence, encouraging them to invest in Bitcoin ETFs and gain exposure to Bitcoin without the need to buy or manage it directly.
As such, if you choose to invest in a Bitcoin ETF, you must do your own research (DYOR) and stay informed about the evolving landscape of Bitcoin ETFs and the upcoming SEC ruling.
Frequently Asked Questions
What is a Bitcoin ETF and How Does It Work?
A Bitcoin ETF (Exchange-Traded Fund) is a financial product that tracks the price of Bitcoin and is traded on traditional stock exchanges. It allows investors to gain exposure to Bitcoin's price movements without directly owning or managing the cryptocurrency.
Why is the SEC's Decision on Bitcoin ETFs Significant?
The U.S. Securities and Exchange Commission's (SEC) ETF decision is crucial as it will determine whether Bitcoin ETFs will be available to investors in the U.S. This decision is significant for broader cryptocurrency adoption and for providing traditional investors a regulated way to invest in Bitcoin.
What are the Benefits of Investing in a Bitcoin ETF?
Benefits include increased accessibility for traditional investors, convenience avoiding the technicalities of handling cryptocurrencies, portfolio diversification, higher liquidity, and professional management of the ETF.
What Risks are Associated with Bitcoin ETFs?
Key risks include counterparty risk, liquidity risk, market volatility, and regulatory risks, especially considering the evolving nature of cryptocurrency regulations in the U.S.
How Will the SEC's Decision Affect the Crypto Market and Investors?
Approval of Bitcoin ETFs is expected to increase Bitcoin's adoption and accessibility, potentially boosting its price. Conversely, rejection could affect investor confidence and the price of Bitcoin, emphasizing the need for a globally accepted regulatory framework for cryptocurrencies.
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Note: Any cited numbers, figures, or illustrations are reported at the time of writing, and are subject to change.