Bitcoin: Why Its Value Has Soared Once Again

The cryptocurrency was trading at $66,975 (£48,456) following the launch of an exchange-traded fund (ETF) in the US, which has dramatically increased exposure to bitcoin for investors.

The fund, which opened on October 19, allows investors to speculate on the future value of bitcoin — without actually owning it. This is the first time investors have been able to trade bitcoin-related assets on the New York Stock Exchange, and it had previously received a lot of media attention and hype in the financial markets.

It began trading at USD 40 (£29) per share and ended the day up 5% with assets of some USD 570 million (£412 million), making it the second most traded new ETF on record ( The first was founded by BlackRock, the world’s largest asset management company).

And the effect on the price of bitcoin has been extraordinary. It rose from its all-time high of $64,895 to a new all-time high of $66,975 and was hovering around $65,000 at the time of writing. This is a significant change from mid-July 2021, when bitcoin hit a 2021 low of less than $30,000, indicating its enormous volatility.

Several financial institutions have previously attempted to gain approval for bitcoin ETFs without success. So far, the Securities and Exchange Commission (SEC) (the US government agency that protects investors) has been reluctant to approve any. This was partly due to widespread concerns about the intense volatility of bitcoin, as well as the unregulated industry of the cryptocurrency.

But SEC Chairman Gary Gensler said the commission would be more comfortable with “future-based” ETFs because they trade on a regulated market. This is a significant change of direction for the SEC that has occurred since Gensler took over. in April 2021.

ETFs trade like any common stock, are regulated, and can be traded by anyone with a brokerage account. This new fund, named the ProShares Bitcoin Strategy ETF (or BITO for short), is the first fund to expose mainstream investors to the highs and lows of bitcoin’s value, without having to go through the complicated process of buying the coins themselves.

Although US investors can already buy bitcoin futures directly from the regulated Chicago Mercantile Exchange and unregulated exchanges such as BitMEX (as well as bitcoin directly from unregulated exchanges), the launch of the ETF has opened the market for a wide variety of investors, including pensions. has opened. The fund adds to the growing acceptance of – and bitcoin – in financial markets.

Some are still skeptical of bitcoin as it is linked to criminal activity, although a recent report suggests it is decreasing. And Jamie Dimon, CEO of investment bank JPMorgan, claims that bitcoin is “useless” and that regulators will “control the hell out of it”. (Still, JPMorgan gave its wealth-management clients access to cryptocurrency funds in July 2021.)

banking blockbuster

Eric Balchunas, a senior analyst at Bloomberg, is not surprised by the price appreciation and described the ETF launch as “a blockbuster, smash, home run debut[that]brings a lot of legitimacy and eyeballs to the crypto space”.

But what effect will BITO have on the cryptocurrency space? As a new product it has already informed more investors about the price volatility of bitcoin in a regulated market. Many of these are likely to feel uncomfortable at first buying cryptocurrencies from unregulated exchanges and storing the assets themselves.

Other investment funds interested in cryptocurrencies will certainly be encouraged by the success of BITO, and will be eager to list their own ETFs that have exposure to bitcoin and its rivals. Several other ETF providers may launch their own bitcoin ETFs in the days following the launch of ProShares, including Invesco, VanEck, Valkyrie and Galaxy Digital.

This is a development that is bound to make investing in cryptocurrencies easier and more common – and a significant step towards their adoption in mainstream finance. (Conversation)

By Andrew Urquhart, Professor of Finance and Financial Technology, ICMA Centre, Henley Business School, University of Reading