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On January 10, 2024, the U.S. Securities and Exchange Commission (SEC) officially approved the listing and trading of several Bitcoin exchange-traded products (ETFs).
However, after the news was released, the entire cryptocurrency market unexpectedly responded tepidly, and in recent days, it has even been in a downtrend. Why did such significant positive news result in this "anomalous phenomenon"? Let's explore and uncover the underlying logic behind the rise and fall of Bitcoin.
Step by step, let's first understand what the approval of Bitcoin ETFs means.
ETF (Exchange Traded Fund) is an exchange-traded open-end index fund that tracks market indices and can be freely bought and sold on stock exchanges. In simple terms, an ETF is like a basket containing various stocks or other assets selected in proportion to a specific stock index. If you have such a basket and select some stocks based on a stock index (such as the Shanghai 50, CSI 300, etc.) to put in this basket, each stock in the basket occupies a proportion identical to its proportion in the stock index. Unlike regular funds, ETFs can be freely bought and sold on the stock exchange throughout the trading day, similar to stocks. This allows investors to easily buy and sell ETF shares.
A Bitcoin ETF is a significant step forward in this concept. It is a special type of ETF with a focus on Bitcoin. This means that investors can indirectly hold Bitcoin by purchasing Bitcoin ETFs without the need to directly buy and store Bitcoin itself. This provides convenience for investors who want to invest in Bitcoin but are concerned about the storage and security issues of digital currencies.
The SEC's approval of Bitcoin ETFs signifies that Bitcoin, as an investment product, has received official approval from a mainstream U.S. financial regulatory agency. Although the SEC simultaneously stated that the approval does not represent an endorsement of Bitcoin itself, this is consistent with the usual style of U.S. financial regulatory agencies. It appears contradictory, but in reality, it is playing a delicate balancing act. The market demand for Bitcoin is growing, but its value, security, and usage exceed the conventional scope of traditional financial regulation. What to do? Instead of leaving it underground and letting it roam freely, it's better to put a controllable shell on it and operate it under the watchful eye of regulation. This shell is the ETF.
This decision by the SEC also reflects its continuous adaptation and adjustment of regulatory frameworks to accommodate financial innovation. In this process, the SEC attempts to find a balance between promoting financial innovation and maintaining market stability and investor protection.
This is an important step for Bitcoin to mature and move towards the mainstream financial market. The SEC's decision not only puts an official stamp on the legitimacy and security of Bitcoin but also opens a new gateway for a wide range of investors into the world of digital currencies.
From historical experience, when a new asset is included in an ETF, it typically brings broader market attention and capital inflows. For Bitcoin, the approval of Bitcoin ETFs may attract more interest and funds from traditional financial investors, driving the price of Bitcoin higher. But why didn't the price skyrocket, "to the moon"?
The answer is on the surface—the market doesn't have enough money.
Let's review the past decade of Bitcoin's skyrocketing. Since the emergence of Bitcoin in 2009, it has coincided with an extended period of quantitative easing by the Federal Reserve. Over the past decade, the Federal Reserve's printing press has been injecting a continuous stream of liquidity into the market. The U.S. stock market has been bullish for 10 years, and Bitcoin has also skyrocketed for 10 years. In 2020, when the pandemic began, the Federal Reserve opened the floodgates to the maximum, and you can see that the price of Bitcoin surged to nearly $70,000.
However, by 2023, the Federal Reserve had started an interest rate hike cycle to curb inflation. The price of Bitcoin began to fall and even dipped to $15,000 at one point. The recent stagnation in the price is also because the interest rate hike cycle of the Federal Reserve has not yet completely ended. There is still disagreement in the market about whether there will be an interest rate cut this year. The market doesn't have enough liquidity, and no matter how many channels are opened, it cannot lift the price.
As a highly volatile asset, the price of Bitcoin will still be influenced by various factors, including technological advancements, market sentiment, regulatory policies, etc.
In summary, the SEC's approval of Bitcoin ETFs is a significant milestone in the digital currency field. It not only adds momentum to the long-term development of Bitcoin but also provides a more diverse and secure investment option for a vast number of investors. In the future, Bitcoin ETFs may become a crucial bridge connecting traditional financial markets with the world of digital currencies. However, just like ships in navigation need to navigate through storms cautiously, investors should exercise caution when investing in Bitcoin ETFs, thoroughly evaluating the risks and opportunities involved. |
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Post time 4-2-2024 13:45:23