[ad_1]
The mainstream cryptocurrency journey became a major cornerstone this week when the first exchange-traded bitcoin fund debuted. Simply put, this means that anyone with a brokerage account will soon be able to buy and sell a bitcoin-backed financial product on the stock market. This comes after years in which US financial regulators are moving away from the cryptocurrency, which is variable. But now it seems that the government is ready to try new things.
The debut was a big hit. After executives at ProShares, the Maryland-based company behind the ETF, called the New York Stock Exchange on Tuesday morning, the product topped $ 1 billion in trading on its first day. This makes it one of the best ETF debuts in history. Later that day, the price of bitcoin jumped above its record high of $ 64,895 to a new record of $ 66,975. The experts don’t really look so surprised.
“It was a blockbuster, a great home debut,” Eric Balcunas, senior ETF analyst at Bloomberg, told me. “It brings a lot of legitimacy and eyeballs to the crypto space.”
But before we understand why, you probably have a few more questions about the terms that appear here. For example, what is a “bitcoin-traded fund” on Earth? What does “futures-based” mean? And do most people really have to pay attention to the cryptocurrency after so many years, probably not paying attention to the cryptocurrency? Let’s go through these questions one by one.
A stock exchange, or ETF, is a basket of securities tied to the price of assets, such as stocks, bonds, or commodities that can be bought or sold on stock exchanges; anyone with a brokerage account can trade ETFs. Bitcoin-related ETFs are, of course, tied to the price of bitcoin, and under the Investment Companies Act 1940, all new ETFs must be registered with the Securities and Exchange Commission. This detail is important because the approval of the Bitcoin ETF agency suggests that it is open to allow more cryptocurrency-related products to be traded. While the SEC has not considered cryptocurrencies to be securities in the past, recent developments show that its views on the issue are evolving.
But it looks like it will take some time before the SEC decides whether to allow bitcoin trading on the stock market. The new ProShares fund, called the Bitcoin Strategy ETF, is based on futures. This means that the fund monitors bitcoin futures traded on a highly regulated Chicago Mercantile Exchange. In other words, the ProShares Bitcoin Strategy ETF does not contain bitcoin itself, but rather relies on the future price of bitcoin. On Tuesday, CNBC SEC President Gary Gensler said the new product would be monitored by the Commodity Futures Trading Commission, the SEC’s sister agency, which will provide some investor protection – but this is a “still highly speculative asset class”.
Despite these complex details, this new bitcoin-based ETF is a big deal. The cryptocurrency community has been pursuing such a financial product for years, but regulators are reluctant to approve it. Cameron and Tyler Winklevoss introduced the first bitcoin ETF of its kind in 2013, but the SEC rejected their first application four years later – and again in 2018, citing instability in the crypto market. The SEC has since postponed decisions on various bitcoin-based ETFs, but is currently considering several new proposals, which are subject to a 75-day review period once companies submit them. If the SEC does not do anything that happened in the case of ProShares, the funds can start trading. The SEC’s review periods for cryptocurrency-based offers from other companies, including Valkyrie Investments, Invesco and VanEck, will also end in the next few weeks.
“Not that this particular ETF will bring in hundreds of billions of dollars or anything like that,” Balchunas explained. But this is an important point, because “It’s a bridge to this whole other world, which is probably not that in crypto and can start to be, now that it’s delivered in the form they like.”
In other words, more crypto-based ETFs are on the way. And if Gensler sees that these new financial products are traded without incident, his SEC could open the door to even more, including those that actually contain cryptocurrencies such as bitcoin and etherium. The very existence of these ETFs not only means that investing in crypto is easier. This also means that bitcoin has more to do with gold than ever before.
This story was first published in the Recode newsletter. Register here so don’t miss the next one!
[ad_2]
Source link