US approval of Bitcoin ETFs is a milestone, but be wary of what comes next - Temple Melville

So, it finally happened – the US Securities and Exchange Commission (SEC) approved 11 Bitcoin exchange traded funds (ETFs). Their admission to the US stock market was greeted with frenzied trading, in what has to be one of the biggest developments in the world of crypto – at least in a positive sense, after two years marked by the likes of FTX’s and Celsius’s respective collapses.

While it is still early days, the volume of trading is indicative of how much of an appetite there is for Bitcoin exposure. That said, the relatively small change to its price in the immediate aftermath – and the subsequent fall – shows how much of the news was already built into the price in anticipation of it being announced. Buy on the rumour, sell on the news was definitely correct.

There are, of course, going to be some surprises – there always are with crypto. The big question mark remains over what impact this development will have on exchanges. Many investors may opt to simply buy, or sell, one of the many available ETFs instead of investing directly – it will come with a lot less hassle and cost. And, given the aforementioned scandals, you can have a bit more faith in the venerable institutions offering these products in a properly regulated environment.

Some more technical issues still need to be addressed as well. Usually, ETFs are a basket of stocks and settlement for the buys and sells is made in the underlying assets. The SEC has said that settlement of the Bitcoin ETFs will need to be made in cash – that is quite a big difference and may well have serious consequences in the future.

The rollercoaster ride that comes with investing in crypto can come as a shock. (stock.adobe.com)

Part of the reason for that is the volatility of Bitcoin. Those of us who have been in crypto for a while now are used to the rollercoaster ride that comes with owning tokens. For investors who have never known what it is to ‘hodl’ through the ups and downs, buying an ETF may come as a bit of a shock – some people will get their fingers burned, despite the SEC’s warning that Bitcoin remains a “speculative, volatile asset.” This is confirmed and amplified by some institutions saying they won’t have anything to do with Bitcoin ETFs.

In the UK, not much has changed. You still cannot buy a Bitcoin ETF – whether it is one of the various EU-listed, crypto-related products or the 11 US ETFs just approved. As far as the Financial Conduct Authority (FCA) is concerned, consumers should not invest in crypto or any crypto-related financial products and, if they do so directly, they should be prepared to lose all of their money. If you want to register with a big exchange like Coinbase, you now have to undertake a quiz to prove you know what you are doing.

However, the direction of travel seems to suggest that at one point or another people will be able to gain exposure to Bitcoin – and perhaps one day other cryptocurrencies – through the stock market. This can only be a good thing for crypto and crypto adoption and, as I have argued previously, the increased level of regulation that comes with a presence on public markets should help to dispel the idea that crypto is the Wild West. But I can’t escape the nagging feeling this is storing up a massive potential disaster in the future, as new-fangled financial instruments tend to do.

There can be no doubt that this is a milestone event for Bitcoin and crypto, more generally – at least it is perceived as such. it is definitely a positive start to Crypto 2024 after a tricky couple of years. But never underestimate crypto’s capacity to surprise: there will inevitably be some unforeseeable events to come, as the next evolution of the industry begins.

Temple Melville, CEO of The Scotcoin Project Community Interest Company (CIC)