Bitcoin ETFs Approved: What Did You Miss?

The SEC finally approved Bitcoin funds, balancing innovation with the need “to protect investors”. The first trading day is today — January 11, 2024.

The financial world stands at the cusp of a notable evolution with the introduction of Bitcoin-based Exchange-Traded Products (ETPs) as of January 10, 2024. The Securities and Exchange Commission’s (SEC) latest release (№34–99306) is a long awaited decision shaping the landscape of cryptocurrency investment in mainstream markets.

The report outlines the SEC’s examination of proposed rule changes submitted by major exchanges including NYSE Arca Inc., The Nasdaq Stock Market LLC, and Cboe BZX Exchange Inc. These proposals aim to list and trade shares of financial instruments like the Grayscale Bitcoin Trust and the Bitwise Bitcoin ETF, among others.

An Exchange-Traded Fund (ETF) is a type of investment fund and exchange-traded product; they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold throughout the day on stock exchanges while mutual funds are bought and sold based on their price at the end of the trading day. ETFs are attractive as investments because of their low costs, tax efficiency, and stock-like features.

Imagine you have a fruit basket. This basket contains a variety of fruits — apples, bananas, oranges, and grapes. Instead of buying each type of fruit separately, you buy the entire basket, so you get a little bit of everything in one purchase.

Now, let’s relate this to an ETF:

1. The Fruit Basket = ETF: The fruit basket represents an ETF. Just like the basket contains different fruits, an ETF contains a mix of different investments — like stocks from various companies, bonds, or even gold. This mix is professionally managed to ensure a good variety and balance.
2. Buying Individual Fruits = Buying Individual Stocks: Instead of buying each fruit separately (like buying individual stocks of different companies), you buy the basket (ETF) that already has a variety of fruits (stocks or other investments).