The price of the most famous cryptocurrency gained 7% in a single day recently. Why?
Crypto investors were celebrating the latest positive development in the crypto space, pushing the price of Bitcoin higher. They had a good reason for that…
Right now, investors have to go through several steps to buy or sell Bitcoin. They need a crypto exchange account, a wallet (or maybe a few), a way to transfer funds… and hope all the elements involved in the process work smoothly together. On top of that, they need to ensure that there are no weak links that would expose them to cybercrime.
For many investors, this is way too complex. This prevents them from getting involved in crypto investing and trading.
The Status Quo Is About to Change
On August 29, Grayscale Investments LLC won a court case against the U.S. Securities and Exchange Commission (SEC) in order to establish the first Bitcoin-based exchange-traded fund (ETF) that would track the crypto’s spot price.
Grayscale already operates a Bitcoin-based fund called Grayscale Bitcoin Trust (GBTC). However, it is a “closed-end” structure (which means it has a limited number of shares) designed for accredited investors. Usually, these are high-net-worth individuals. The minimum required investment right now is $50,000, which is too high for millions of potential buyers.
The company won a court battle against the SEC to convert this trust into an ETF. It will simplify access to Bitcoin and potentially other cryptos for a lot of investors.
In the past, attempts to create an ETF tracking Bitcoin’s spot price were rejected. There are ETFs following Bitcoin futures, but these don’t track the movements in the crypto’s price precisely. Their performance may differ from the price of the underlying asset.
As a tool directly linked to the spot price of Bitcoin, this potential future ETF will likely be in high demand. Now, if the SEC doesn’t appeal the court’s decision, investors will be able to invest in Bitcoin through their day-to-day brokerage.
The Floodgates Could Open Soon
If Grayscale succeeds, other major players will follow. BlackRock, Fidelity, Invesco, and others will establish their own crypto-linked products and promote them to their clients. These three firms have over $14.5 trillion in assets under management.
It will be a strong show of support for the crypto space. However, industry insiders expect a bumpy road. It may take a while before crypto becomes truly mainstream.
When that happens (assuming it will), would it support the price of Bitcoin? Most likely. A more widespread adoption of crypto assets will be positive for their price, in our view.
The space is still volatile, however. And Bitcoin has a mixed track record, with a 305% gain in 2020, a 60% return in 2021, followed by a loss of 64% in 2022. Investing in such assets requires high risk tolerance, and they may not fit every investor’s portfolio.
The Financial Star will keep updating you on the latest developments in the crypto space. Eventually, it could become a megatrend, such as artificial intelligence (AI), automation, green energy transition, critical minerals, and others.
Thank you for your loyal readership,
The Financial Star team