Crypto Bulls Unleashed: SEC Approval of Bitcoin ETFs Sparks Frenzy
Get ready for the cryptocurrency revolution on Wall Street. The U.S. Securities and Exchange Commission (SEC) shook up the investment landscape last Wednesday, giving the green light to rule changes that open the doors for the creation of Bitcoin (BTC) exchange-traded funds (ETFs). Crypto assets have soared on the news.
Institutional investors are now invited by regulators to ride the crypto wave, courtesy of the SEC’s nod of approval. Below, I explain what it all means for average investors.
The SEC said it approved 11 applications from major asset managers for the first U.S.-listed ETFs to track Bitcoin, including from BlackRock (NYSE: BLK), Ark Investments/21Shares, Fidelity, Invesco, and VanEck.
The SEC’s groundbreaking decision not only means that Bitcoin ETFs from big players are on the horizon, but it also sets the stage for Grayscale’s existing Bitcoin Trust to transform into a much more accessible ETF.
The SEC’s approval was not entirely unexpected, but neither had it been a foregone conclusion. Often in the past, SEC Chair Gary Gensler has expressed skepticism towards Bitcoin and other cryptocurrencies. Gensler maintained his cautious stance in a January 10 statement:
Importantly, today’s commission action is cabined to [exchange-traded products] holding one non-security commodity, Bitcoin. It should in no way signal the commission’s willingness to say anything about the commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws.
Gensler’s tone strikes me as begrudging, which suggests crypto will continue to garner heightened regulatory scrutiny.
In his statement, Gensler emphasized that the approval of Bitcoin ETFs should not be misconstrued as an endorsement of Bitcoin itself. He urged investors to exercise caution due to the myriad risks associated with Bitcoin and products tied to crypto, describing Bitcoin as “primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.”
On the Cusp of a Bull Market
In anticipation of the SEC’s move, cryptocurrencies have been on a tear. Bitcoin closed out 2023 with a whopping 156% gain, rising from about $16,000 to over $42,000 as the leading crypto asset regained credibility following numerous high-profile criminal cases.
BTC/USD is a commonly used symbol in cryptocurrency trading that represents the trading pair of Bitcoin and the United States dollar (USD).
In cryptocurrency trading, currencies are traded in pairs. The first currency listed in the pair is the base currency, and the second currency is the quote currency. In the case of BTC/USD, Bitcoin is the base currency, and the U.S. dollar is the quote currency.
Take a look at the following chart:
The BTC/USD trading pair indicates the exchange rate between Bitcoin and the U.S. dollar. It represents how many U.S. dollars are required to buy one Bitcoin.
Traders and investors use this trading pair to speculate on the price movement of Bitcoin against the greenback. They can either buy Bitcoin with U.S. dollars (i.e., go long) in the expectation that its value will increase, or sell Bitcoin for U.S. dollars (go short) if they expect its value will decline.
The above chart depicts a long-term bullish price pattern for Bitcoin, with BTC/USD well above its 50- and 200-day moving averages.
The SEC’s decision last week suggests that crypto stands on the cusp of a new bull market. Bitcoin was the first and remains the best-known crypto. But there are thousands of others including Ethereum (ETH), Ripple (XRP), and Litecoin (LTC). Each one has its own features.
The global cryptocurrency market’s size is estimated to grow by more than USD 1.8 billion from 2022 to 2027, according to research firm Technavio. The market is estimated to grow at a compound annual growth rate (CAGR) of 15.81% during the forecast period.
Our investment team will continue to keep an eye on crypto, as its opportunities unfold. I’m observing that even conservative members of my readership are placing modest amounts of crypto in their portfolios, usually as hedges against inflation.
Crypto assets such as Bitcoin are considered to be bulwarks against inflation because of their fixed supply. When an asset’s supply is limited, it means that new coins can’t enter circulation, thereby precluding the risk of inflation.
Inflation: Still a Wild Card
Inflation has been dramatically curbed, but we’re not completely out of the woods. We just got mixed news on the inflation front.
The U.S. Bureau of Labor Statistics reported Thursday that the consumer price index (CPI) was 3.4% in December for the full year of 2023. That’s higher than the consensus estimate of 3.2%, but still sharply down from 6.5% in 2022. Rent accounted for half of inflation in December. Fed officials expect shelter costs to decline throughout 2024 as renewed leases reflect lower rents. Month-over-month, the CPI came in at 0.3% versus the 0.2% estimate.
The “core” inflation metric (excluding food and energy), which the Federal Reserve watches closely, fell to 3.9% year-over-year in December (versus 3.8% estimated), the lowest since May 2021. Core CPI rose 0.3% on a monthly basis as anticipated.
As you can see, the CPI came in slightly higher than estimates. The CPI reading is exacerbated by the release on Thursday of stronger-than-expected initial jobless claim figures, coming in at 202k for December, compared to expectations of 210k.
What’s more, geopolitical strife could worsen, causing supply chain disruptions that reignite inflation. Hence crypto’s appeal as an inflation hedge, in addition to its growth prospects.
But maybe crypto isn’t for you. If you’re looking for proven ways to make money with mitigated risk, I suggest you consider the advice of my colleague Jim Pearce, chief investment strategist of Personal Finance.
Personal Finance, founded in 1974, is our flagship publication and it has helped investors build wealth for nearly 50 years.
Case in point: If you had taken the initial recommendation of Personal Finance to buy Chevron (NYSE: CVX), and held on, you’d be sitting on a whopping return of nearly 3,200% (that’s not a typo).
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John Persinos is the editorial director of Investing Daily.
This article previously appeared on Investing Daily.