Introducing Bitcoin ETFs: A New Avenue for Crypto Enthusiasts to Invest - But What Exactly Are They?

The US has given approval for Bitcoin to be included in mainstream investment funds. Known as spot Bitcoin exchange-traded funds (ETFs), these funds can be purchased by a range of investors, from pension funds to individuals. The announcement from the head of the Securities and Exchange Commission (SEC) came with a warning about the risks associated with the asset. Despite the caution, cryptocurrency enthusiasts reacted positively, expressing joy and sharing memes about becoming rich. Previously, the US financial watchdog had rejected requests for approvals, citing concerns about potential fraud and manipulation. However, a US court ruled last year that their justification was insufficient. The approval comes after a false start on Tuesday, when the regulator had to retract an "unauthorized" post about the decision. SEC chairman Gary Gensler emphasized that the approvals should not be seen as an endorsement of the cryptocurrency. He stated that Bitcoin is primarily a speculative and volatile asset, also used for illicit activities such as ransomware, money laundering, sanction evasion, and terrorist financing. He advised caution regarding the risks associated with Bitcoin and related products. ETFs are investment portfolios that allow investors to bet on multiple assets without directly purchasing them. Similar to shares, ETFs' value depends on the performance of the overall portfolio in real time. While some ETFs already indirectly include Bitcoin, spot Bitcoin ETFs will purchase the cryptocurrency directly at its current price throughout the day. The approval of these ETFs by the SEC opens the door for a new group of investors to enter the speculative world of Bitcoin without having to navigate crypto exchanges or obtain digital wallets. It is anticipated that billions of dollars will flow into the Bitcoin market as these financial companies begin purchasing the digital coin. Although some analysts believe the price of Bitcoin will be minimally affected, as spot Bitcoin ETFs are already established in other countries, the entrance of major US players into the market is expected to drive up the value of Bitcoin due to increased demand. However, the price of Bitcoin is notoriously volatile, with significant fluctuations in recent years. The decision to include Bitcoin in mainstream investment funds is seen by some as a recognition of Bitcoin's legitimacy and a validation of its status as "digital gold." Others argue that cryptocurrency is meant to challenge traditional financial systems and that investment bankers buying Bitcoin for profit goes against the original intention of Bitcoin's creator, Satoshi Nakamoto. Nevertheless, the prevailing sentiment on social media is that the cash injection from investment funds will benefit existing Bitcoin investors and potentially make them richer. Investors considering ETFs linked to Bitcoin will need to consider the rapid and unpredictable price fluctuations associated with the cryptocurrency. Additionally, cybercrime poses a risk, as cryptocurrencies have been targeted in large-scale attacks resulting in significant financial losses. If major institutions like Blackrock become significant Bitcoin holders, their cybersecurity measures will face new challenges. The environmental impact of Bitcoin is another concern, as it relies on energy-intensive mining processes. Investment companies will need to address environmental and sustainability concerns to maintain compliance with investors focused on environmental, social, and corporate governance (ESG) issues.