Bitcoin just got a bit closer to becoming part of our everyday lives

It was the world’s worst-kept secret.

The approval of Bitcoin exchange traded funds (ETFs) on 10 January by the Securities and Exchange Commission (SEC), the US financial regulator, had been hotly anticipated.

If anything, the announcement was old news. Earlier this week, a hacker gained access to the SEC’s account on X, formerly Twitter, and posted a fraudulent tweet claiming ETFs had been approved before they were.

That aside, the official stamp of approval from the SEC, which has previously taken a sceptical stance towards all things cryptocurrency, marks a significant moment in the adoption of the technology, which is meant to upend the old ways of thinking about finance.

“This approval by the financial regulator of the world’s largest economy is a landmark moment for Bitcoin and the wider crypto market and boosts prices in the long-term, even if there’s a sell-off in the near-term,” said Nigel Green of deVere Group, a financial consultancy that has long championed the cause of crypto.

“Bitcoin ETFs help democratise access to the cryptocurrency market, allowing a broader range of investors to participate,” he added.

In essence, this is the latest step in Bitcoin becoming part of our everyday lives. And with the US approval, it’s possible that other countries – including the UK – could follow suit.

Bitcoin ETFs are likely to be far more attractive to the public, compared to Bitcoin itself, because individuals can reap the potential rewards without having to get their head around the more technologically complicated logistics of handling cryptocurrency themselves.

So, rather than having to learn how to set up a cryptocurrency wallet and decipher the number of different options available to pick from, ordinary investors can now buy into a Bitcoin ETF, should they wish.

ETFs are portfolio funds that track the price of a commodity or product without requiring investors to buy those products themselves. You can buy ETFs that give you access, for instance, to the cumulative power of the entire FTSE100 index, funds focused on natural gas or crude oil extraction firms, or commodities like gold or silver. If the value of the companies or commodities tracked by the fund rises, the ETF’s value does, too.

“A spot Bitcoin ETF isn’t just a financial instrument,” said Sheila Warren, CEO of the Crypto Council for Innovation, an industry lobby group. “It’s a significant and practical move towards integrating crypto into the mainstream. This move helps make this revolutionary technology more accessible to all.”

Warren believes that the approval of a Bitcoin ETF will pave the way for more blending of the old ways of financial trading and the new methods that are championed by cryptocurrency adherents.

Cryptocurrencies like Bitcoin are usually minted and traded using the blockchain, a decentralised technology that provides a permanent record of all transactions. The principle behind cryptocurrency is a radical one: developing an alternative to traditional banks and financial authorities that can control the distribution and trading of such items.

An ETF combines the old and the new because people can invest in cryptocurrency through familiar methods.

“Allowing investors to partake in the Bitcoin journey without the technical hurdles of direct ownership is a significant step towards inclusivity,” said Warren.

That would be a boon not just for ordinary people who want to dip their toe into the water of crypto – but also for the hardcore crypto supporters.

“This could result in a more stable and liquid crypto market, representing a positive development for the digital finance ecosystem,” said Rajeev Bamra, senior vice president for digital finance at financial rating agency Moody’s Investors Service.

In short: more money invested into the space thanks to a broader pool of investors, the more stable and liquid the entire ecosystem could become.

However, the SEC’s approval of the ETF didn’t mean it approves of crypto more generally.

This is because ETFs are comparatively arms-length from cryptocurrencies, which still suffer from scammers who launch projects then defraud investors.

Alongside the announcement, SEC chairman Gary Gensler added a note of caution for investors.

“Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing,” he said. “Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.”

And given his organisation’s announcement was spoiled by a ne’er-do-well hacker seemingly looking to exploit interest in an ETF approval to spike the price of the commodity, that caution from Gensler seems important.