Here's what a bitcoin ETF actually means for investors
- The Securities and Exchange Commission approved the first-ever spot bitcoin ETFs on Wednesday, paving the way for them to begin trade.
- The move will give investors increased ways to gain exposure to bitcoin, which they can now hold via existing financial instruments.
- CNBC runs through what you need to know about the new bitcoin ETFs, and why they're a big deal for investors — and for the cryptocurrency itself.
The U.S. Securities and Exchange Commission just approved the first-ever batch of spot bitcoin exchange-traded funds to come out of the U.S.
The agency gave the green light on Wednesday to sponsors of 10 ETFs, including BlackRock, Invesco, Fidelity, Grayscale, and Ark Invest — paving the way for these funds to begin trading as soon as this week.
The move was largely expected, even after a social media hacking snag. A false statement saying the regulator had approved a bitcoin ETF was published Tuesday on the SEC's social media account on X, formerly known as Twitter. The agency later clarified that its account had been compromised.
The actual approval Wednesday marked a massive step for the cryptocurrency, as it will give investors increased ways to gain exposure to the token — not just from holding it directly, but via existing financial instruments that trade on a regulated stock exchange.
But what does that all mean exactly, and how does it affect investors? CNBC runs through everything you need to know about the bitcoin ETF milestone.
What's a bitcoin ETF?
An ETF is an investment fund that tracks the performance of an underlying asset. That could be stocks, a basket of currencies, a precious metal like gold, or, in this case, bitcoin.
It's a way for investors to get exposure to the value of the underlying asset without directly owning it.
ETFs trade on traditional stock exchanges, and their value should rise when the underlying asset increases in price, or fall if it decreases.
As crypto investors look to assess what the market impact of a bitcoin ETF might be, many are comparing Wednesday's news to the greenlighting of the SPDR Gold Shares ETF — the first-ever spot gold ETF — in 2004.
The total gold market capitalization was worth around $1 trillion to $2 trillion before the gold ETF was approved, and this subsequently ballooned to $16 trillion in a few years after, according to Vijay Ayyar, vice president of international markets for Indian crypto exchange CoinDCX.
"Bitcoin's adoption will be much faster and bigger than that," Ayyar told CNBC via WhatsApp.
Ayyar said the story for bitcoin and crypto will "accelerate" in 2024, as the approval of a spot bitcoin ETF could spark interest from retail investors who were previously sitting on the sidelines.
What does a bitcoin ETF mean for investors?
A bitcoin ETF opens up the audience of people and institutions that can buy and sell bitcoin to those with little experience trading cryptocurrency.
"This ETF has two main impacts: increased distribution in the US (a moderate impact, as there have been ETFs outside of the US for years) and increased credibility of crypto as an 'asset class' (a very high impact)," Kevin de Patoul, co-founder and CEO of crypto liquidity provider Keyrock, told CNBC.
"There is now a U.S. bitcoin spot ETF, and bitcoin is no longer considered shady or infamous. This significantly changes the perception for the mainstream public."
It also means that bitcoin could start appearing in mainstream portfolios, where many more retail investors can gain exposure.
Big institutional fund managers can add it to their investment funds. Retirement planners can now include it in employer-sponsored 401(k) plans.
This makes it much easier to own bitcoin, as you don't have to rely on a vulnerable piece of hardware for storage. Investors don't need to tackle the difference between "hot" and "cold" wallets, which store digital tokens.
Instead, they can just buy an ETF from one of the many regulated asset managers that are set to go live with their own ETFs.
"The approval of a Bitcoin ETF has huge implications for US investors because they can now hold crypto in their brokerage account, which they couldn't do before," Timo Lehes, co-founder of blockchain firm Swarm Markets, told CNBC.
"This gives the green light for portfolio diversification into the asset, and we expect major inflows of capital into the market, as a result."
A bitcoin ETF could bring the cryptocurrency exposure to a more diverse set of holders with different levels of size and experience in the market.
Ayyar said the approvals Wednesday "mark a key moment in the maturity of the crypto asset class."
"Mass retail now has an easy, safe way to gain exposure to the asset class through their brokerage account," Ayyar told CNBC.
"The ETF approval also provides a credible stamp of approval for large institutions and market participants that were waiting for an easier way to access the asset class rather than buying crypto directly, which always has inherent price and custody risks."