Wednesday, 20 December 2023
by Earn Media
The price of Bitcoin (BTC) skyrocketed in 2023, climbing an astonishing 158% as of the time of this writing. To put those gains in better context, the S&P 500 rose nearly 23% for the year.
Cryptocurrencies are often more volatile than the stock market, but why was so much optimism directed toward Bitcoin? Because investors believe the U.S. Securities and Exchange Commission (SEC) may be close to approving a spot Bitcoin exchange-traded fund (ETF).
Doing so would open Bitcoin investing to many more people and could, in turn, drive the value of Bitcoin even higher.
Right now, if you want to invest in Bitcoin, you essentially have to own the cryptocurrency. The problem with this, for some investors, is that you either need to own and store the digital tokens yourself or entrust them to be held by third parties.
A spot Bitcoin ETF would allow investors to track the price of Bitcoin as it moves, with the ETF directly invested in Bitcoin. This means investors would own shares of Bitcoin assets in their brokerage account, with the ETF directly holding the Bitcoin assets.
There are a few key benefits of spot Bitcoin ETF:
Reuters estimates there would be a lot of demand for a Bitcoin ETF, creating $3 billion worth of investment demand in just the first few days. If that happens, the price of Bitcoin could climb higher and add even more gains to Bitcoin’s recent rise.
More than a dozen firms have applied for the Bitcoin ETF, and Reuters reporting shows that the SEC may approve the ETF sometime in early January.
If it happens, then you may be able to invest in Bitcoin through your brokerage account soon. If you’re considering buying it when it becomes available, ensure you’re prepared for any potential volatility the ETF could experience.
While the past year has been good for Bitcoin’s price, there’s no guarantee that it will continue trending upward. And any negative news involving cryptocurrencies or Bitcoin could send its price tumbling. For example, Bitcoin’s price dropped by 64% in 2022 amid a pullback among investors from the crypto market.
The crypto market has experienced a lot of ups and downs recently, with the collapse of the cryptocurrency exchange FTX and the SEC bringing charges against another major exchange, Binance.
And there is still inherent risk with digital currencies. For example, if a spot Bitcoin ETF is approved, the investment firms will own the digital currency and have to store it somewhere. Cryptocurrency theft among cybercriminals is already big business, and it could become even more lucrative if large brokerages begin buying substantial sums of Bitcoin.
That doesn’t mean a Bitcoin ETF won’t be worth investing in, but you need to be aware that cryptocurrency investing, even through an ETF, is likely to be more volatile than investing in the stock market.
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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.