Bitcoin, the world’s largest cryptocurrency, soared to a new record high on Monday, breaking above $34,000 for the first time in its history. The rally was driven by growing expectations that a bitcoin exchange-traded fund (ETF) could soon be approved by the U.S. Securities and Exchange Commission (SEC), which would make it easier for institutional and retail investors to access the digital asset.
What is a Bitcoin ETF and Why Does It Matter?
A bitcoin ETF is a type of investment product that tracks the price of bitcoin and allows investors to buy and sell shares of the fund on a regulated stock exchange. Unlike buying bitcoin directly from a crypto exchange or a wallet, a bitcoin ETF would offer investors the benefits of lower fees, higher liquidity, tax efficiency, and regulatory oversight.
A bitcoin ETF would also increase the demand and adoption of bitcoin, as it would open the door for more mainstream investors who are interested in the cryptocurrency but are reluctant to deal with the technical and security challenges of holding it. A bitcoin ETF would also provide more exposure and legitimacy for bitcoin in the financial markets, as it would be traded alongside other traditional assets such as stocks, bonds, and commodities.
What are the Chances of a Bitcoin ETF Approval?
The SEC has been historically cautious and skeptical about approving a bitcoin ETF, citing concerns over market manipulation, fraud, custody, and volatility. The regulator has rejected several applications for a bitcoin ETF in the past, including one from Grayscale Investments in 2018.
However, the tide may be turning in favor of a bitcoin ETF approval, as several factors have improved the prospects of the cryptocurrency in recent months. These include:
- The growing adoption of bitcoin by institutional investors, such as MicroStrategy, Square, PayPal, and Tesla, which have added billions of dollars worth of bitcoin to their balance sheets or enabled their customers to buy and sell bitcoin on their platforms.
- The increasing innovation and competition in the crypto industry, which has led to the development of more sophisticated and secure products and services for investors, such as futures, options, lending, staking, and decentralized finance (DeFi).
- The rising popularity and performance of bitcoin, which has outperformed most other asset classes in 2020 and 2021, reaching new highs and attracting more attention and interest from the media and the public.
- The changing regulatory landscape and sentiment towards bitcoin, which has become more favorable and supportive in some jurisdictions, such as Canada, Brazil, Switzerland, Germany, and Singapore, where several bitcoin ETFs have been launched or approved.
- The potential shift in the SEC’s leadership and approach under the Biden administration, which may appoint more crypto-friendly officials to key positions, such as Gary Gensler as the new SEC chairman. Gensler is a former MIT professor who has taught courses on blockchain and digital currencies and has expressed some positive views on bitcoin in the past.
Based on these factors, some analysts and experts believe that a bitcoin ETF approval in the U.S. is imminent or inevitable. Several companies have filed new applications for a bitcoin ETF with the SEC this year, including VanEck, WisdomTree, Fidelity, Bitwise, and Invesco. Among them, BlackRock’s iShares ETF has generated the most buzz recently, as it appeared on a list of ETFs on the website of clearing house DTCC. This sparked speculation that its approval was close or already granted. However, both BlackRock and sources close to the SEC denied this report and confirmed that the application was still pending.
How Did Bitcoin and Crypto Stocks React to the ETF Hype?
The anticipation of a bitcoin ETF approval has boosted the sentiment and enthusiasm in the crypto market, leading to a surge in prices and volumes. Bitcoin jumped 10% on Monday to reach a new all-time high of $34,283, breaking its previous record of $28,572 set on December 27. The cryptocurrency has gained more than 300% in 2020 and more than 20% in 2021 so far.
Other cryptocurrencies also followed suit, with ether, the second-largest crypto by market cap, rising 6% to hit a two-month high of $1,163. Ether also broke above its 200-day moving average, a key technical indicator that signals an uptrend.
Crypto-related stocks also soared on Monday as investors bet on their exposure to the booming sector. Coinbase Global, the largest U.S. crypto exchange that is planning to go public soon, rose 9% to $303. Marathon Digital, one of the largest U.S.-based bitcoin miners, jumped 18% to $30.64. MicroStrategy, a business intelligence firm that holds more than 70,000 bitcoins on its balance sheet, surged 13% to $540.71.
The crypto market is expected to remain volatile and exciting in the coming weeks and months, as more developments and news emerge regarding the bitcoin ETF saga. Whether the SEC will finally approve a bitcoin ETF or not is still uncertain, but the crypto community is hopeful and optimistic that it will happen sooner or later.
