A Change Of Heart

🚀 What’s happening: After a long wait the Security and Exchange commission (SEC) just allowed 11 companies to market and sell a Bitcoin ETF to the public (if we lost you at ETF, we explain that here).

For anyone who wanted easier access to to invest in Bitcoin, this news is positive. But that’s not the whole story.

Let’s back it up…

As a result of the 2008 financial crisis, cryptocurrency (like Bitcoin) was created around the noble idea that big banks and our currency system are not dependable. That they don’t care about the everyday tax paying American (i.e. their customers) because it was us who were left holding the bag while they got bailed out.

Fair enough.

On cue, Blackrock and other large financial firms spoke out against Bitcoin and other cryptocurrency saying it was unstable and too volatile (among other things) to be considered an alternative currency. They floated the idea they would even need to see government backing in order to get involved.

Well, not much has changed except for one thing.

Bitcoin still isn’t backed by anything and the price is not any more stable today than it was when all of these concerns were voiced. Today, the demand for cryptocurrency continues to skyrocket, so these big firms— like Blackrock— are now entering the ring because they found a way to make money with the asset after all.

WTF?… no, ETF.

In simple language, ETFs are baskets of assets that are traded on exchanges just like stocks. This means that you can buy and sell ETFs throughout the day, just like you would buy and sell stocks.

You see the simple way an ETF makes money for companies like Blackrock is by getting investors to buy it. When you hand them the money to buy their ETF, they charge you fees (which can be large if the market is big enough).

With bitcoin, some experts estimate that the Bitcoin ETF market could be higher than $150 billion… which amounts to a lot of potential fees and profits for these big firms. What’s even better is that the SEC has only allowed 11 firms to start one, so anyone who didn’t get a stamp of approval is effectively shut out of the profit game.

Vanguard sitting it out.

The other stir this week was that one of the big firms, Vanguard, not only didn’t have an ETF but wasn’t going to allow clients to trade any of the current ETFs on their platform. They noted they don’t think Bitcoin lines up with their values, and whether this is true or just sounds good, they are likely to lose a lot of funds to competitors as a result.

👪 Closer to home: We take no position on whether or not a Bitcoin ETF is a good investment for your portfolio, we just think it’s important for our readers to know the full story of how the sausage is made before taking a bite. Happy investing!