Cryptocurrency Enthusiasts Celebrate Bitcoin Acceptance as an ETF - What Does It Mean?

ETFs are portfolios that allow investors to invest in many different assets without having to buy any of them

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Illustration, Photo: Getty Images
Illustration, Photo: Getty Images
Disclaimer: The translations are mostly done through AI translator and might not be 100% accurate.

American financial institutions have made a long-awaited decision to allow investment companies to actively invest in Bitcoin for clients.

Bitcoin-linked exchange-traded funds (ETFs) can now be used in everything from pension funds to investment portfolios.

Cryptocurrency enthusiasts from around the world are celebrating on social media with feverish excitement, posting annotated charts and get-rich-quick memes.

ŠWhat is an ETF?

ETFs are portfolios that allow investors to invest in many different assets without having to buy any of them.

They are traded on the stock market as shares, and their value depends on the performance of the overall portfolio in real time.

An ETF can consist of a combination of gold and silver bullion, for example, or a mix of high-tech stocks and insurance companies.

Some ETFs already hold bitcoin indirectly, but so-called "spot" bitcoin ETFs will buy the cryptocurrency directly, "on the spot," at its current price throughout the day.

Why all the excitement?

About a dozen investment firms, among them Blackrock and Fidelity, waited months for the US Securities and Exchange Commission (SEC) to give them the green light to start buying bitcoins for their own ETFs.

And after several weeks of tension over the wording, the first ones have now received approval.

This means that a new group of investors can now enter Bitcoin speculation without having to worry about having digital wallets or wading through crypto exchanges.

And now billions of dollars are expected to pour into the Bitcoin market as these financial companies start buying more and more of the digital coins.

A smaller number of analysts argue that this will have very little effect on the price of cryptocurrencies, since spot bitcoin ETFs are already accepted in other countries.

But with the entry of American giants into this market, most people expect that the value of Bitcoin will start to rise along with the demand.

Its price, however, is notoriously volatile.

It jumped to almost $70.000 per coin in 2021 and then fell to $16.000 in 2022.

But in 2023 it rose steadily, thanks in part to the frenzy surrounding the approval of bitcoin ETFs, and is now at $44.000.

Based on an idea published online in 2008 by a man named Satoshi Nakamoto, Bitcoin is the first cryptocurrency, and it remains the most valuable and famous.

Its price is often seen as a barometer for an entire industry of thousands of other coins, tokens and products based on the same blockchain technology.

And with the influx of new money into this ecosystem, many expect a surge of interest in cryptocurrency technology as a whole.

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How will this decision affect cryptocurrency adoption?

Some say this groundbreaking decision indicates that the establishment is finally starting to take bitcoin seriously, if only as a speculative vehicle.

For those who consider Bitcoin to be legitimate "digital gold," what better proof of that than the rush of major money management institutions buying it, all under the watchful eyes of regulators?

Others argue that the essence of cryptocurrencies is to reject traditional financial systems in favor of a decentralized alternative powered by people.

And investment bankers buying bitcoin just to get rich in US dollars isn't exactly what Satoshi Nakamoto originally had in mind.

But judging by the excitement on social media, the prevailing sentiment is the hope that the cash injection will enrich existing bitcoin investors.

What are the risks for future investors?

The price of Bitcoin can change rapidly and frequently without any warning or explanation.

And that's why investors need to take this into account when choosing ETFs related to digital coins.

But ETFs are often marketed as high-risk, high-reward products anyway.

Another potential risk is cybercrime.

Bitcoin and other cryptocurrencies have been the target of massive and expensive attacks that have sometimes drained hundreds of millions of dollars from crypto companies overnight.

And if someone like Blackrock were to become the majority owner of Bitcoin, its cyber-security would be put to a serious test that it is not used to.

Another negative side is environmental damage.

Bitcoin relies on a huge number of powerful computers from around the world to process transactions and create coins.

The use of renewable energy is on the rise - but it remains to be seen how investment firms can reconcile bitcoin's potential environmental cost with buyers concerned about meeting environmental, social and corporate standards.

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