Source: Barron's

The US Securities and Exchange Commission (SEC) announced approval of the first batch of spot Bitcoin ETFs on Wednesday (1/10), which will begin trading as early as Thursday.

Eleven ETFs issued by major ETF issuers such as BlackRock (BlackRock), Fidelity (Fidelity), and Invesco (Invesco) and smaller companies such as BitWise Asset Management, Ark Invest, and 21Shares have been approved.

After the SEC announced its decision to approve the Bitcoin ETF, the price of Bitcoin did not change much. According to CoinDesk data, Bitcoin rose 0.8% in the past 24 hours, and the price was around 459.84 million US dollars on Wednesday. Mark Connors (Mark Connors), head of research at 3iQ, pointed out that this is mainly because expectations for Bitcoin ETF approval are already reflected in the price, and investors will pay close attention to the initial capital inflow within 24 to 48 hours after starting trading on Thursday.

Bitcoin has risen nearly 10% so far this year after more than doubling last year

SEC Chairman: Approving a Bitcoin ETF is not the same as endorsing or supporting Bitcoin

The SEC has refused to approve the launch of a Bitcoin ETF for many years on the grounds of insufficient regulation of fraud and manipulation in the Bitcoin trading market. However, last year, a federal appellate court found that the SEC was arbitrary and capricious in refusing to convert Grayscale Bitcoin Trust into an ETF, so it ruled that the SEC's decision was wrong.

SEC Chairman Gary Gensler (Gary Gensler) said in a statement that in the case of losing the lawsuit, approval of a spot Bitcoin ETF is the “most sustainable path forward.”

Gensler also warned against investing in Bitcoin. In a statement, he said, “Although we approved the listing and trading of a number of spot Bitcoin ETFs today, we do not approve or support Bitcoin, and investors should be cautious about the many risks of Bitcoin and crypto-related products.”

Gensler also stated that Bitcoin “is a highly speculative, unstable asset used for illegal activities including ransomware, money laundering, evasion of sanctions, and terrorist financing.”

A new batch of investors is about to enter the market, and Bitcoin will gain new upward momentum

Bitcoin supporters believe that for the first time, institutional investors and financial advisors can invest in Bitcoin in a simple, low-cost way, and that a newly launched ETF could attract tens of billions of dollars.

Standard Chartered Bank (Standard Chartered) analysts predicted at the beginning of this week that these ETFs could attract 50 billion to 100 billion US dollars this year. This massive inflow of capital will have a huge impact on the Bitcoin market.

Bitcoin ETF issuers point out that the real impact will be felt over a longer period of time, as many institutional investors and financial advisory platforms must go through a review process before incorporating Bitcoin ETFs into their portfolios, which takes several weeks.

Tom Staudt (Tom Staudt), chief operating officer of ARK Invest (ARK Invest), said, “Trillions of dollars of wealth will be released.” Currently, Ark is working with 21Shares to guarantee an ETF approved by the latter. Currently, in institutional investors' portfolios, Bitcoin “has always been isolated from other wealth.”

Three pros and two cons of investing in Bitcoin ETFs

For retail investors, investing in Bitcoin through ETFs has three advantages.

Advantage 1: It's more convenient to invest in Bitcoin through ETFs. If you are interested in Bitcoin but don't want to sign up for a cryptocurrency wallet or buy it through PayPal or Robinhood, investors can add ETFs offered by investment companies such as Fidelity or Greyscale to their existing brokerage account, and can place their Bitcoin holdings and other assets in the same account without worrying about problems that often cause investment losses such as lost passwords or fraud, which can reduce the “fear factor” when investing in Bitcoin.

Advantage 2: It's cheaper to invest in Bitcoin through ETFs. When investors invest in bitcoins through exchanges such as Coinbase, the exchange charges 1% or more. Bitcoin ETF issuers have started a “rate war” over the past few days for competitive purposes. As of Wednesday afternoon, Bitwise said its ETF rate would be set at 0.20%, Ark and 21Shares said their co-sponsored ETF rate would be set at 0.21%, and the Bitcoin ETF launched by BlackRock and Fidelity at 0.25%. Companies such as Bitwise, Ark, 21Shares, and Fidelity said they will temporarily completely waive annual fees for a period of time or when the scale of asset management is at a certain level.

Low fees may make newly launched ETFs the cheapest place for a large number of investors to buy Bitcoin, and the appeal of traditional cryptocurrency trading platforms such as Coinbase may decrease.

Advantage 3: Investors only need to pay taxes when selling. Many ETFs also generate annual taxable income from capital gains, dividends, or interest without investors selling, and investors only need to pay taxes when they make a profit when they buy a Bitcoin ETF.

Investing in Bitcoin through an ETF also has two drawbacks.

Disadvantage 1: Investors don't actually own any bitcoins. Buying a Bitcoin ETF doesn't mean investors actually own bitcoins; it means they can't use them as currency to buy Ferraris or other cryptocurrencies.

Disadvantage 2: Bitcoin is extremely volatile. Whether investing through an ETF or directly through an exchange, Bitcoin's high volatility will not go away, and investors should carefully assess their risk tolerance before buying.

Editor/jayden