NEW YORK (AP) — The Securities and Exchange Commission on Wednesday reluctantly approved the first exchange-traded funds that hold bitcoin, saying it is still deeply skeptical about cryptocurrencies and that its decision did not mean it approves or endorses bitcoin.
The SEC said it gave the green light to 11 exchange-traded funds for bitcoin even though it only faced a deadline for one application. The agency said that would provide competition and a “level playing field.”
Bitcoin ETFs could open the door to cryptocurrencies to many new investors who don’t want to take the extra steps involved in buying actual bitcoin.
It’s a major win for Wall Street, particularly trillion-dollar fund managers like BlackRock, Fidelity Investments and Invesco that have pushed hard to get the SEC to approve their applications. It’s also a win for the cryptocurrency industry, which has needed a win after nearly two years of turmoil that has resulted in the failure of several crypto firms, most notably FTX in November 2022.
The SEC’s approval, however, was lukewarm at best. Gary Gensler, the agency’s chairman, has repeatedly said cryptocurrencies need more regulation and investor protections.
“Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto,” Gensler said.
Other commissioners expressed alarm that the SEC agreed to approve the funds.
“I am concerned that these products will flood the markets and land squarely in the retirement accounts of U.S. households who can least afford to lose their savings to the fraud and manipulation that appears prevalent in the spot bitcoin markets,” Commissioner Caroline Crenshaw said in her dissent.
An exchange traded fund is an easy way to invest in assets or a group of assets, like gold, junk bonds or bitcoins, without having to directly buy the assets themselves. Cryptocurrency advocates hope the development thrusts the once niche and nerdy corner of the internet even further into the financial mainstream. ETFs can be purchased quickly with any brokerage and trade on an exchange like the Nasdaq stock market.
The regulatory greenlight has been anticipated for several months and the price of bitcoin has jumped about 70% since October as crypto investors speculated the broad use of bitcoin ETFs would drive up demand for the cryptocurrency. The price of etherium, the second-most popular cryptocurrency, has also risen on speculation that fund managers will create ETFs around it.
Some analysts think that ETFs may help stabilize crypto prices by broadening their use and potential audience. But many remain concerned that broad use of crypto ETFs could put too much risk and volatility into Americans’ retirement accounts.
“The notorious price volatility of Bitcoin, as well as its fluctuating values against stablecoins and other cryptocurrencies, could expose mainstream investors to a less familiar spectrum of investment risks,” said Yiannis Giokas, senior director of Moody’s Analytics.
An exchange traded fund, or ETF, is an easy way to invest in something or a group of things, like gold or junk bonds, without having to buy the things themselves. Unlike traditional mutual funds, ETFs trade like stocks, which means they can be bought and sold throughout the day.
Since the inception of bitcoin, anyone wanting to own one would have to buy it. That in turn would mean either having to learn what a cold wallet is or having to open an account at a crypto trading platform like Coinbase or Binance.
A spot bitcoin ETF could open the door to many new investors who don’t want to take such extra steps.
The price of bitcoin has already soared in anticipation of the SEC’s approval, with bitcoin trading at $45,890 Wednesday, up from around $27,000 in mid-October. The price had sunk as low as $16,000 in November of 2022 following the bankruptcy of the crypto exchange FTX.
HOW WOULD THE ETF WORK?
The Bitcoin Strategy ETF (BITO) has already been trading since 2021, but it holds futures related to bitcoin, not the cryptocurrency itself.
The new bitcoin ETF will perform like the SPDR Gold Shares ETF (GLD), which allows anyone to invest in gold without having to find someplace to store a bar or having to protect it. It’s the same reason some people invest in the SPDR Bloomberg High Yield Bond ETF (JNK), which lets investors simply buy one thing instead of the more than 1,000 low-quality bonds that make up the index.
HOW MANY BITCOIN ETFS COULD THERE BE?
The SEC said it gave approval to 11 ETFs, but more are certain to apply for trading in the coming months.
WHAT ARE THE DISADVANTAGES OF AN ETF?
Longtime crypto fans might object. Cryptocurrencies like bitcoin were created in part due to mistrust of the traditional financial system. Wall Street would become an intermediary between investors and cryptocurrency in the case of ETFs.
ETFs also charge fees, though they tend to be relatively low compared with the overall financial industry. These fees are shown through what’s called the expense ratio, which indicates how much of a fund’s assets the ETF will take each year to cover its costs.
WHEN IS IT BETTER TO HOLD ACTUAL BITCOIN?
An ETF will not put actual cryptocurrency into investors’ accounts, meaning that they cannot use it. Also, an ETF would not provide investors with the same anonymity that crypto does, one of the big draws for many crypto investors.
WHAT CONCERNS SHOULD INVESTORS HAVE?
The biggest concern for an investor in one of these ETFs is the notorious volatility in the price of bitcoin.
Despite failing to catch on as a replacement for fiat, or paper, currencies, bitcoin soared near $68,000 in November of 2021. A year later it fell below $20,000 as investors in general shunned riskier assets and a series of company blowups and scandals shook faith in the crypto industry.
Even as regulators and law enforcement crack down on some of cryptos bad actors, like Sam Bankman-Fried of FTX, the industry still has a modern “Wild West” feel to it. The hack of the SEC’s X account raises questions about both the ability of scammers to manipulate the price of bitcoin and SEC’s own ability to stop them.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
