As of Thursday morning, the Securities Exchange Commission has approved 11 spot bitcoin exchange-traded funds. The move is widely expected to bring more legitimacy to an industry marred by the recent collapse of cryptocurrency exchanges.
Several large investment firms had filed applications for ETFs with the SEC, including BlackRock, ARK Invest, Invesco and Fidelity Investments. The approved ETFs have already begun trading Thursday on traditional SEC-regulated exchanges like the New York Stock Exchange and Nasdaq.
An ETF is an investment fund that tracks the price of an underlying asset or index, much like a mutual fund, and can be bought and sold through a brokerage account.
For investors, "an ETF might be perceived as safer than a direct investment through crypto exchanges," says Marcel Miu, a certified financial planner and founder of Simplify Wealth Planning. "This is primarily due to the regulatory oversight governing ETFs — they are subject to the regulatory standards of financial markets that can offer a layer of security and transparency not always present in the crypto space."
What this means for you
As a result of the approvals, investors can now buy ETFs through their existing brokerage accounts instead of dealing with cryptocurrency exchanges. Plus, they don't need to own crypto directly to have a stake in the market.
In the past few weeks, the price of bitcoin and other popular cryptocurrencies has risen in anticipation of a new crop of potential buyers. However, the price of bitcoin tumbled on Tuesday after the SEC said that an announcement posted to X about bitcoin ETFs being approved was incorrect. As of late Thursday morning, bitcoin's price has regained those losses.
Still, that doesn't change the risky nature of cryptocurrencies, which are highly speculative assets.
"Investing in a bitcoin ETF carries risks, similar to investing in cryptocurrencies directly," says Miu. "The value of bitcoin can be highly volatile, influenced by factors such as regulatory news, technological developments and market sentiment."
Indeed, bitcoin lost more than 75% of its value following the collapse of FTX in 2022, one of the largest cryptocurrency exchanges at the time. Although it has since bounced back, it remains volatile, with 5% to 10% daily price swings common.
Should you invest in a bitcoin ETF?
Because cryptocurrencies are highly speculative, financial experts commonly recommend investing no more than you're willing to lose.
That said, a small amount of crypto can be part of a diversified investing strategy.
"I think it makes sense for most folks to hold a small holding of cryptocurrencies, maybe 1% or 2% of an entire portfolio," says Chris Diodato, a CFP and founder of WELLth Financial Planning. "I'm hesitant to recommend more because, in addition to its significant volatility, it doesn't produce cash flow like traditional investments — it's only worth as much as someone is willing to pay for it."
While many people have made money on cryptocurrency price swings, there are no guarantees that the prices will continue to rise.
"A crypto ETF, like any speculative investment, should be approached with caution," says Miu. "While ETFs provide some regulatory safeguards, they do not eliminate the inherent risks associated with the underlying asset — in this case, bitcoin. Potential investors should be aware of these risks and consider them in the context of their overall investment strategy and risk tolerance."
This story has been updated to reflect the approval of spot bitcoin ETFs.
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