New funds will make investing in bitcoin easier. Here’s what you need to know

NEW YORK -- Nearly a dozen new bitcoin funds began trading on U.S. markets for the first time on Thursday, providing greater access to the cryptocurrency for everyday investors.

The new exchange-traded funds, or ETFs, offer investors an asset that closely tracks the price of bitcoin.

The Securities and Exchange Commission approved 11 funds from asset managers including Blackrock, Invesco and Fidelity late Wednesday. The wave of approvals may work in their favor as fund managers look to attract investors by competing on fees.

In addition to being a victory for fund managers, the approvals are also a victory for the cryptocurrency industry, which needed a victory after almost two years of turmoil, including the failure of several cryptocurrency companies, most notably FTX in November 2022.

The SEC's approval, however, was lukewarm at best. Gary Gensler, president of the agency, has repeatedly said that cryptocurrencies need more regulation and investor protection.

"Investors should be cautious of the myriad risks associated with bitcoin and products whose value is tied to cryptocurrencies," Gensler said.

However, the regulatory green light had been anticipated for several months, and the price of bitcoin has risen approximately 70% since October due to the belief that bitcoin ETFs will increase demand for the cryptocurrency.

Bitcoin rose 2% in early trading on Thursday and trading in the new ETFs was mixed.

Some analysts believe that ETFs can help stabilize cryptocurrency prices by expanding their use and potential audience. But many remain concerned that crypto ETFs pose too much risk and volatility for Americans' retirement accounts.

"Bitcoin's notorious price volatility, as well as its fluctuating values ​​against stablecoins and other cryptocurrencies, could expose mainstream investors to a less familiar spectrum of investment risks," said Yiannis Giokas, senior director at Moody's Analytics. .

Here are some things you should know about bitcoin ETFs.

WHY ALL THE EXCITEMENT ABOUT A BITCOIN ETF?

An exchange-traded fund, or ETF, is an easy way to invest in something or a group of things, such as gold or junk bonds, without having to take ownership of those assets. Unlike traditional mutual funds, ETFs trade like stocks, meaning they can be bought and sold throughout the day.

Since the beginning of bitcoin, anyone who wanted to own one would have to buy it. That, in turn, would mean having to learn what a cold wallet is or open an account on a crypto trading platform like Coinbase or Binance.

A spot bitcoin ETF could open the door to many new investors who don't want to take additional steps.

The price of bitcoin has already skyrocketed in anticipation of SEC approval, with bitcoin trading at $47,500 on Thursday, up from $27,000 in mid-October. The price had fallen as low as $16,000 in November 2022 following the implosion of the FTX crypto exchange.

HOW WOULD THE ETF WORK?

The new bitcoin ETFs will work like the SPDR Gold Shares ETF (GLD), which allows anyone to invest in gold without having to find a place to store a bar or having to protect it. It's the same reason some people invest in the SPDR Bloomberg High Yield Bond ETF (JNK), which allows investors to simply buy one thing instead of the more than 1,000 low-quality bonds that make up the index.

He bitcoin The Strategy ETF (BITO) has been around since 2021, but it holds futures related to bitcoin, not the cryptocurrency itself. Those prices are not tracked as closely as a pure bitcoin ETF.

HOW MANY BITCOIN ETFS COULD THERE BE?

The SEC said it had approved 11 ETFs, but more are sure to be requested for trading in the coming months.

WHAT ARE THE DISADVANTAGES OF AN ETF?

Longtime cryptocurrency fans might object. Cryptocurrencies like bitcoin were created in part due to distrust of the traditional financial system. Wall Street would become an intermediary between investors and cryptocurrencies in the case of ETFs.

ETFs also charge fees, although they tend to be relatively low compared to the financial industry as a whole. These fees are shown through what's called an expense ratio, which indicates how much of a fund's assets the ETF will take each year to cover its costs.

WHEN IS IT BEST TO HAVE REAL BITCOIN?

An ETF will not put actual cryptocurrencies into investors' accounts, meaning they cannot use them. Additionally, an ETF would not provide investors with the same anonymity as cryptocurrencies, one of the big draws for many cryptocurrency investors.

WHAT CONCERNS SHOULD INVESTORS HAVE?

The biggest concern for an investor in one of these ETFs is the notorious volatility of the price of bitcoin.

Despite failing to catch on as a replacement for fiat or paper currencies, bitcoin soared near $68,000 in November 2021. A year later it fell below $20,000 as investors shunned riskier assets and a series of company explosions and scandals shook faith in cryptocurrencies. industry.

Even as regulators and law enforcement crack down on some of crypto's bad actors, like FTX's Sam Bankman-Fried, the industry still has a "wild west" feel.

A hack of the SEC's Account .