This article will discuss what happens if Bitcoin ETF is approved. The crypto world has been buzzing for months about a potential spot Bitcoin ETF approval by the Securities and Exchange Commission (SEC).
Read on to find out what has people so excited about spotting Bitcoin ETFs, why the SEC has so far been hesitant to approve any, and what it means for you as an investor.
The future of crypto investing: What happens if Bitcoin ETF is approved?
If the SEC approves a spot Bitcoin ETF, it will mean that people will be able to buy Bitcoin without having to use a crypto exchange or broker. This won’t solve all of crypto’s problems, but accessing Bitcoin on an exchange could remove a major barrier for institutional and retail investors. It would make it safer and easier to buy and store Bitcoin.
The high-profile collapse of several top crypto exchanges underscored the limited protections in the crypto world and severely dented investor confidence. Crypto assets do not have the same protections as securities in a brokerage account or cash in a bank. If you leave your crypto on an exchange, you could lose everything if that exchange fails or is hacked. Crypto investors may prefer to store their Bitcoin in a crypto wallet, but this requires knowledge and comes with risks.
What is a Bitcoin ETF?
ETFs, also known as exchange-traded funds, are baskets of exchange-traded securities. These can be stocks, bonds, real estate, or commodities. Think of it as buying shares in a company that owns and manages these assets. In this case, the ETF will contain Bitcoin, and investors will be able to gain exposure to the leading cryptocurrency directly from their brokerage accounts.
Several groups have spotted ETF applications, including ARK Investment, BlackRock, and Grayscale Investments. The SEC has rejected previous spot Bitcoin ETF proposals over fears of fraud and market manipulation. The SEC is concerned that there is not enough investor protection in crypto. However, a court ruled that this was wrong last year, and the SEC did not appeal the decision.
It has held detailed discussions with various prospective ETF issuers in recent months, fueling speculation that we could soon see an approval. The SEC has until January 10 to approve the initial filings. Some analysts believe this will happen sooner. Others say the SEC could ask for more time or reject the applications altogether.
The SEC approved a Bitcoin futures ETF a few years ago, but a spot ETF is different. Futures are a type of derivative. If you own futures, you have a contract to buy or sell that asset at a certain price in the future. You don’t actually own the asset. A spot Bitcoin ETF will hold Bitcoin instead of contracts to buy or sell the crypto.
In contrast, shares in an ETF – even a spot Bitcoin ETF – will be held in a brokerage account and covered by SIPC insurance. SIPC stands for Securities Investor Protection Corporation and covers up to $500,000 of client assets if your brokerage firm fails.
SIPC insurance does not protect against volatility or poor market performance. So if Bitcoin completely collapses, you will lose your investment, whether you hold Bitcoin in an ETF or in some other form.
What steps can crypto investors take?
First, try not to get caught up in the frenzy around a Bitcoin ETF. Speculation is rife in the cryptocurrency world, which can mean that prices rise in the run-up to major news events only to fall when the event happens. The price of Ethereum (ETH), for example, fell after its long-awaited switch to a more sustainable mining model.
Take a step back and consider Bitcoin’s long-term potential and how it might fit into your portfolio. Make sure you understand the risks involved. If the SEC approves a Bitcoin ETF, this will not automatically make crypto safe. The sector is still relatively new and unregulated, and many questions about how it might develop.
For example, we don’t yet know what shape the regulatory framework in the US will take. Some fear that this could cripple this emerging sector. In contrast, others believe it will give the industry stronger foundations to grow. A lot depends on the details, which have yet to be finalized. However, increased regulation will impact crypto prices in the short term.
If you’re considering buying Bitcoin for the first time, be prepared for volatility. Crypto fluctuates much more dramatically than the stock market, which can be a shock. I’ve seen the value of my crypto portfolio drop by about 50% in a few months, and it’s frustrating, to say the least. Make sure high-risk assets like crypto only make up a small percentage of your portfolio and only invest money you can afford to lose.
The approval of the Spot Bitcoin ETF could be a game-changer for the cryptocurrency industry, making it easier and safer for investors to access Bitcoin. However, it is important to understand the risks involved and approach crypto investing cautiously.
Featured image credit: Freepik
