The move comes after years of repeated attempts to make an ETF from Bitcoin, which is like a mutual fund for cryptocurrencies. 

ETFs would be a way for investors to take part in Bitcoin’s price movements without having to directly buy them (‘ETFs are a way for participants to ‘invest’ in Bitcoin, without actually owning the coin’.) The coins would belong to the ETF, which would issue shares to buyers that track the value of the coin. 

The potential benefit of Bitcoin ETFs is in risk mitigation for those looking to add crypto to their investment portfolios, as it allows them to have a stake in the currency without having to day trade or closely watch market movements – something which is required for an asset as volatile as Bitcoin.

According to a statement from SEC chairman Gary Gensler, between 2018 and 2023, the SEC disapproved of more than 20 exchange rule filings for spot bitcoin ETPs (Exchange-traded products).

What has changed, he says, is not the ETP filings, but the circumstances. “The U.S. Court of Appeals for the District of Columbia held that the Commission failed to adequately explain its reasoning in disapproving the listing and trading of Grayscale’s proposed ETP,” he said. 

Amid anticipation for the approval, Bitcoin’s value has climbed 164% in the past year, although some were concerned the price was being pumped in preparation for approval only to be sold off once it lands. The fake tweet gave buyers and regulators alike a chance to view how the market reacted to approval.

“While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse Bitcoin,” said Gensler. “Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”

The move does, however, undermine the UK’s vision of becoming a global crypto hub. As explained in a recent Financial Times article: “The hotly anticipated launch of a bitcoin ETF in the US leaves the UK out of step with some other major markets in maintaining its blockade on retail access to exchange-traded crypto funds.”

What are Bitcoin ETFs?

An ETF is an exchange-traded fund that consists of securities based on some index, sector, commodity, or other asset. Put simply, with a Bitcoin ETF, you invest in the fund and receive profits from the growth of the asset without owning the coin itself.

It serves an attractive option for those interested in crypto investment without any substantial market knowledge or appetite to day trade. With an ETF, participants buy a fund share through a brokerage account. The fund, in turn, manages your money by buying and selling coins.

The problem is that the approval of such a fund is a long and complex process. The application must be approved by the U.S. Securities and Exchange Commission (SEC).

What do Bitcoin users think?

The general sentiment among crypto users is that the approval of Bitcoin ETFs will attract billions in investments, leading to an increase in overall market capitalisation and demand for the coin from funds. If demand and capitalisation increase, the asset’s price also rises.

And demand will increase, since companies who issue ETFs need to buy matching amounts of Bitcoin, and the safety and ease with which investors can invest in them now is predicted to attract many new buyers.

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The Tweet Mishap

The SEC, in a tweet on Tuesday, pre-emptively announced it had granted approval for ETFs in cryptocurrency. This caused Bitcoin to experience a brief surge of almost $48,000 (£37.7K) before retracting to about $46,000 (£36.1K). 

The tweet, which has since been deleted, read: “The regulator grants approval for #Bitcoin ETFs for listing on all registered national securities exchanges.” 

Gensler quickly refuted the false announcement on his personal X account, stating, “The @SECGov twitter (X) account was compromised, and an unauthorised tweet was posted. The SEC has not approved the listing and trading of spot bitcoin exchange-traded products.”

Speaking with the BBC, the SEC confirmed that there was unauthorised access and activity on the X account for a brief period. The regulatory body said it will be working with law enforcement and partners across government to investigate, and determine the next steps. 

According to X, the platform where the false tweet was posted, the compromise was not due to its systems, but rather due to an individual obtaining control over a phone number with the account through a third party. According to X, the account did not have two-factor authentication enabled at the time. 

The announcement of a Bitcoin ETF was not pulled out of thin air, however. The market has been waiting for months for the SEC’s approval or blocking of a number of spot Bitcoin ETF applications in the US.