Federal regulators on Wednesday approved a new financial product that tracks the price of bitcoin, a landmark moment for the cryptocurrency industry that supporters hope will increase investment in the technology.
The Securities and Exchange Commission has allowed 11 applications for exchange-traded funds tied to bitcoin, a potentially simpler way for people to invest in the digital asset. Some of the world’s largest financial companies, including asset managers BlackRock and Fidelity, have been approved to offer products known as ETFs, which could begin trading Thursday on traditional platforms such as the Nasdaq.
The approvals were welcomed as a sign that major financial institutions are still willing to deal with cryptocurrencies even after 18 months of market collapse and major bankruptcies. Since the fall, the price of Bitcoin has risen more than 60%, as traders bet that approval of new cryptocurrency products would give the industry a pass on regulatory legitimacy, attracting new investments from professional wealth managers and amateur traders.
Bitcoin’s price rose on Tuesday after a post appeared on the SEC’s official X account announcing the approval of ETFs, but fell quickly when SEC Chairman Gary Gensler said the agency’s account had been hacked.
Cryptocurrency enthusiasts only had to wait until Wednesday, when the Securities and Exchange Commission authorized the products in a regulatory filing. Bitcoin price rose slightly after this announcement.
In a statement, Mr. Gensler, a fierce critic of fraud and volatility in cryptocurrency markets, said the approvals should not be construed as an endorsement of the technology. “We did not approve or support Bitcoin,” he said. “Investors should remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to cryptocurrencies.”
However, the long-awaited licenses bring a pillar of the mainstream financial system into the experimental world of digital money.
Widely offered by financial companies such as Charles Schwab and Vanguard, ETFs are baskets of assets divided into shares that can be bought and sold on the open market — a form of investment popular among wealth managers who control trillions of dollars in capital. .
Instead of storing bitcoin in online wallets, investors in bitcoin ETFs will own shares in funds that contain the digital currency. Investors will gain exposure to the market without some of the risks and inconveniences historically associated with cryptocurrencies, a loosely regulated technology that allows people to exchange digital money outside the supervision of banks or other traditional intermediaries.
“It creates a bridge to the traditional financial market,” said James Seyphart, a Bloomberg Intelligence analyst who tracks ETFs. “In the long term, I think the money will come.”
Cryptocurrency proponents have pushed for the introduction of a Bitcoin ETF for years, hoping that it will accelerate broader adoption of cryptocurrencies. In 2021, the Securities and Exchange Commission approved funds that track bitcoin’s volatility without holding the currency itself. But the agency argued that a fund containing bitcoin would pose significant risks to consumers, citing illegal manipulation of cryptocurrency prices, among other issues.
These arguments failed in court. In August, the SEC lost a legal battle with crypto asset manager Grayscale Investments, one of the companies that applied to offer the product, paving the way for a Bitcoin ETF.
The price of Bitcoin quickly rose dramatically and this month reached nearly $47,000, the highest value since a series of bankruptcies that led to the collapse of the industry in 2022.
On social media, speculation raged about the timing of the SEC’s approval. The fake ad on Tuesday led to a 15-minute celebration before Mr. Gensler chimed in on X. X’s official account for the platform’s security resources He said The agency did not enable two-factor authentication, a common digital security tool, to protect its account.
Anticipation for new crypto products has been building for months. In November, BlackRock filed paperwork to create an exchange-traded fund tracking the price of Ethereum, the second-largest cryptocurrency after Bitcoin, sparking further excitement.
But skeptics said the new products would not solve any of the fundamental problems with cryptocurrencies, such as fraud and volatility. The market crash of 2022 drained the savings of millions of ordinary investors. Critics have said that many cryptocurrency companies do not offer many practical benefits.
In a public letter last week, the nonprofit group Better Markets said approving Bitcoin ETFs would be a “historic mistake that will certainly cause significant harm to investors.” Others argued that the products would not provide much support to cryptocurrency prices.
The growing importance of companies like BlackRock in the world of cryptocurrencies also runs counter to the maverick industry’s early promise of providing an alternative to mainstream financial giants.
“There’s a lot of cynicism and hypocrisy,” said John Stark, a former SEC official and longtime cryptocurrency critic.
In his statement on Wednesday, Mr. Gensler said the August court ruling made approval of ETFs “the most sustainable path forward.” But he said the decision “should in no way” indicate that the SEC is prepared to allow similar products tied to other cryptocurrencies. He described Bitcoin as a “speculative and volatile asset” used for money laundering, terrorist financing and other crimes.
However, the industry celebrated.
“Today will be remembered in the history of cryptocurrencies,” said Richard Ting, CEO of Binance, the world’s largest cryptocurrency company. to publish On X.
Brad Garlinghouse, CEO of cryptocurrency company Ripple, He said On X, “the importance of this moment cannot be overstated.” He added: “Today’s news is more legitimacy for cryptocurrencies as an asset class.”
Firms authorized to offer bitcoin ETFs — which also include Grayscale, Franklin Templeton and several others — have already begun competing for clients. A few of them revised the management fees they plan to charge Bitcoin ETFs this week, seeking to undercut competition. BlackRock reduced its fees to 0.25 percent from 0.3 percent.