The US Securities and Exchange Commission (SEC) recently approved a new investment fund focusing on Bitcoin, a popular digital currency.
This move has sparked much discussion about investing in cryptocurrencies, known for their big price swings.
What’s New?
In January 2024, the SEC approved investment funds that directly follow the price of Bitcoin. These funds differ from previous ones that were available on US stock markets, which did not hold Bitcoin itself. Instead, they dealt with contracts predicting Bitcoin’s future price or invested in companies related to digital currency tech. By directly owning Bitcoin, the hope was to make these funds more affordable and attractive to investors, resulting in increased buying and selling.
Did It Make a Difference?
Based on our observations, the recent excitement around Bitcoin didn’t seem to have much of an impact on its price or trading volume. In fact, when the first direct investment fund was launched, Bitcoin’s price actually dropped by 10%. Additionally, we believe that Bitcoin isn’t a great choice for investment portfolios due to its unpredictable nature, high costs, and slow transaction times. It’s also not very easy to purchase or sell large quantities of Bitcoin.
The future of digital currencies is uncertain due to recent events, such as a large digital currency exchange being fined $4.3 billion. However, the technology behind digital currencies is still growing and has the potential to shape future markets. This raises questions about how much investors should involve themselves in this area.
Why Does This Matter If I’m Not Investing in Crypto?
Cryptocurrencies are a significant market worth around $1.71 trillion. Even if you are not directly investing in cryptocurrencies, it is challenging to overlook this sector, as it indirectly affects many investment portfolios. Determining how much an investment fund or portfolio is involved with digital currencies is complicated. It depends on how you define a ‘crypto stock.’ This could vary from companies that deal with cryptocurrencies to those that earn a bit from digital assets. Research indicates various companies, including Alphabet (Google’s parent company) and Amazon, have links to digital currencies to varying degrees. It could be advantageous if digital currencies and related technologies become mainstream.
