US regulators have approved the country’s first investment products set up to directly track the price of Bitcoin.
The US Securities and Exchange Commission (SEC) last week approved the launch of 11 exchange traded funds (ETFs), which follow the price of Bitcoin, and are known as spot ETFs.
The SEC has previously opposed these products, explained MoneyWeek, “claiming the asset is open to fraud and manipulation” but it has given the go-ahead after courts queried its opposition.
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Gary Gensler, chairman of the SEC, remains cautious though. He said that while listings from investment providers such as BlackRock, Fidelity and Grayscale were approved, “investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto”.
What is Bitcoin?
Bitcoin is the world’s oldest and best-known cryptocurrency.
It is a digital token that was launched in 2008 by someone calling themselves Satoshi Nakamoto, explained BBC News, and “remains the most valuable and famous”.
The price of Bitcoin and other cryptocurrencies is very volatile though, depending on supply, demand and sentiment. The Bitcoin price hit $70,000 or £50,000 in 2021, before falling to $16,000 in 2022 “as scandals shook the industry”, but in recent months it has risen “steadily” to around $44,000.
What is a Bitcoin ETF?
An ETF aims to replicate the performance of a broad index such as the FTSE 100 or individual assets such as shares or bonds.
A Bitcoin ETF gives investors a “regulated way to gain exposure without needing to hold it directly”, said The Times.
Cryptocurrencies such as Bitcoin are unregulated, so there is no investor protection if a trading platform collapses or your money is stolen.
A Bitcoin ETF gives you exposure to the cryptocurrency’s “huge swings in value”, added The Times, but in theory you are still protected by the Financial Services Compensation Scheme if the investment firm behind the ETF were to fail.
The SEC approval doesn’t remove the volatility of Bitcoin though, added MoneyWeek, as the price is “still subject to wild price swings depending on sentiment and there are risks of big losses”.
Who can invest in a Bitcoin ETF?
The latest Bitcoin ETFs are only available to US investors.
There would be “regulatory hurdles” to selling a Bitcoin ETF to UK investors, said Financial News. US-based ETFS are “not permitted” to be sold to UK investors, so asset managers would have to launch “specifically tailored” products for the UK or European market.
The Financial Conduct Authority (FCA) has already “cracked down” on crypto marketing and banned the sale of crypto-backed exchange traded products to UK investors, added ThisIsMoney, and has “made it clear” that it thinks there are risks that come with cryptocurrency investing. This makes the path to any UK approval “a long one”.
There are other ways for UK crypto fans to get exposure to Bitcoin.
One option is to invest directly in Bitcoin through an FCA-regulated platform, said Morningstar, or “for those feeling somewhat more cautious”, you could buy shares of companies involved or exposed to cryptocurrency mining or blockchain.
Existing crypto investors may also benefit from more money going into Bitcoin, added MoneyWeek, “but it also risks making the value more volatile”.
