On Wednesday, 10th January 2024, the American stock market regulator – SEC (Securities and Exchange Commission) allowed eleven companies to offer ETFs (Exchange Traded Funds) which include bitcoin – one of the cryptocurrencies.
What is an Exchange Traded Fund?
Let’s break down the term.
Exchange Traded – Something that can be traded on a stock exchange.
Fund – A type of mutual fund.
So, an ETF is nothing but a type of investment fund that is offered by investment houses and can be traded.
Let’s say you want to invest in gold but not buy physical gold. Then, you can buy a gold ETF that will take money from you and invest in gold. When gold rises, the value of your fund will rise too.
So, what has been approved on Wednesday?
The SEC has allowed eleven fund houses to offer bitcoin as an investment type. Investors cannot directly invest in bitcoin, but they can take a product from one of these eleven companies.
However, even while giving this limited approval, the SEC has clearly expressed that it does not think it is wise to invest in this asset class. The statement reads:
It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities. Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws.
and
While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.
Why is this important
So far, all governments have maintained that because crypto is mainly based on sentiment and is not regulated by any government, it is not really a currency. It is just an exchange of notional value among some people that involves actual trading of dollars (or any other real currency).
Any unregulated financial instrument is more vulnerable to frauds, and crypto has been no exception. When a crypto fraud happens, there is no one to complain to, because, well, there is no regulatory authority.
This is the first time that the US has approved regimented trading of bitcoin. It is important to note that only one cryptocurrency has been approved – Bitcoin. Bitcoin is also the oldest cryptocurrency in the world. It was started fifteen years ago.
The recent value of one bitcoin is at about 47,000 USD.
How did India respond?
The very next day, January 11th, Shri Shaktikanta Das, the governor of RBI, stated that the US regulator may have done what they think is good for them, but India is not likely to follow suit and expose investors to risky investment options.
What is good for another market need not be good for us. Therefore, our views – both that of the Reserve Bank and personally of mine – remain the same.
Shri Shaktikanta Das also mentioned that even while giving the approval, SEC has warned citizens about the risks of cryptocurrencies.
Question for you
What do you think of cryptocurrencies? Do you know anyone who has invested in crypto assets? Would you consider investing in them?