{"id":22540,"date":"2021-11-03T13:14:08","date_gmt":"2021-11-03T13:14:08","guid":{"rendered":"https:\/\/research.reading.ac.uk\/research-blog\/?p=22540"},"modified":"2021-11-09T08:27:30","modified_gmt":"2021-11-09T08:27:30","slug":"bitcoin-why-its-value-has-rocketed-once-again","status":"publish","type":"post","link":"https:\/\/research.reading.ac.uk\/research-blog\/2021\/11\/03\/bitcoin-why-its-value-has-rocketed-once-again\/","title":{"rendered":"Bitcoin: why its value has rocketed once again"},"content":{"rendered":"

Bitcoin\u2019s journey into mainstream finance has reached another major milestone \u2013 and another record price. The cryptocurrency was trading at US$66,975<\/a> (\u00a348,456) following the launch of an exchange traded fund (ETF)<\/a> in the US which has dramatically increased bitcoin\u2019s exposure to investors.<\/p>\n

The fund, which opened on October 19, allows investors to speculate on the future value of bitcoin \u2013 without actually owning it. It is the first time investors have been able to trade an asset related to bitcoin on the New York Stock Exchange, and was preceded by much media attention and hype in financial markets.<\/p>\n

\"\"<\/p>\n

It began trading at US$40 (\u00a329) a share and finished the day up 5% with some US$570 million<\/a> (\u00a3412 million) of assets, making it the second most heavily traded new ETF on record (the first was set up by BlackRock, the world\u2019s biggest asset management company).<\/p>\n

And the impact on the price of bitcoin has been extraordinary. It soared past its all-time high of $64,895 to the new record of $66,975 and at the time of writing, was hovering around $65,000. This is a big change from mid-July 2021 when bitcoin hit a 2021 low of under $30,000<\/a>, reflecting its huge volatility.<\/p>\n

Many financial institutions have previously tried to get approval for bitcoin ETFs without success. Until now, the Securities and Exchange Commission (SEC) (the US government agency which protects investors) has been reluctant to approve any. This was partly due to the intense volatility of bitcoin, as well as broader concerns about the unregulated industry of cryptocurrencies.<\/p>\n

But Gary Gensler, chairman of the SEC, said<\/a> the commission would be more comfortable with \u201cfuture-based\u201d ETFs because they trade on a regulated market. This is a significant change of direction<\/a> for the SEC which has happened since Gensler arrived at the helm in April 2021.<\/p>\n

ETFs trade like any normal stock, are regulated, and anyone with a brokerage account can trade them. This new fund, named the ProShares Bitcoin Strategy ETF<\/a> (or BITO for short), is the first to expose mainstream investors to the highs and lows of bitcoin\u2019s value, without them having to go through the complex process of purchasing the coins themselves.<\/p>\n

Although US investors could already buy bitcoin futures directly from the regulated Chicago Mercantile Exchange<\/a> and unregulated exchanges such as BitMEX<\/a> (as well as bitcoin directly from unregulated exchanges), the launch of an ETF opens up the market to a wider variety of investors, including pension funds \u2013 and adds to the growing acceptance of bitcoin in the financial markets.<\/p>\n

Some are still sceptical of bitcoin due to its link with criminal activity, although a recent report<\/a> suggests this seems to be diminishing. And Jamie Dimon, the CEO of investment bank JP Morgan, claims bitcoin<\/a> is \u201cworthless\u201d and that regulators will \u201cregulate the hell out of it\u201d. (Nevertheless, JP Morgan gave its wealth-management clients access to cryptocurrency funds in July 2021.)<\/p>\n

Banking blockbuster<\/strong><\/p>\n

Eric Balchunas, a senior analyst at Bloomberg, is not surprised by the price appreciation and described the ETF launch<\/a> as \u201ca blockbuster, smash, home run debut [which] brings a lot of legitimacy and eyeballs into the crypto space\u201d.<\/p>\n

But what impact will BITO have on the cryptocurrency space? As a new product it has already exposed more investors to the ups and downs of bitcoin\u2019s value in a regulated market. Many of these are likely to have previously felt uncomfortable buying cryptocurrencies from unregulated exchanges and having to store the asset themselves.<\/p>\n

Other investment funds with an interest in cryptocurrencies will be no doubt be encouraged by BITO\u2019s success, and keen to list ETFs<\/a> of their own which are exposed to bitcoin and its rivals. Several other ETF providers are likely to launch their bitcoin ETFs in the days following ProShares\u2019 debut, including Invesco, VanEck, Valkyrie and Galaxy Digital.<\/p>\n

It is a development which is bound to make investing in cryptocurrencies easier and more common \u2013 and an important stepping stone for their adoption into mainstream finance.<\/p>\n

Andrew Urquhart is an Associate Professor in the ICMA Centre.<\/p>\n

This article is republished from\u00a0The Conversation<\/a>\u00a0under a Creative Commons license.<\/p>\n","protected":false},"excerpt":{"rendered":"

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