Is Spot Bitcoin ETF A Trap For Naive Investors?
Should naive investors stay away from this potential trap?
- The SEC has approved the first spot Bitcoin ETFs, making it easier for investors to approach BTC.
- While spot Bitcoin ETFs can be a convenient way to invest in Bitcoin, they also come with some risks.
- Regulators have warned investors about the risks of investing in spot Bitcoin ETFs, especially for naive ones.
Larry Fink’s Breakthrough
Why Investors Should Be Careful
Thanks to ETFs approval, all kind of investors – even retail and naive ones – can now approach Bitcoin. Investing in an ETF, in fact, doesn’t mean you need to buy Bitcoin. The means it’s much less expensive to put money into this financial instrument.
But, despite Fink’s enthusiasm and all the headlines celebrating the SEC’s greenlight, there are some risks for investors. The ETFs were launched to make it easier for small investors to have exposure to cryptocurrency. They were also designed to make them feel more at ease, thanks to the reputation enjoyed by traditional finance companies that focus on Bitcoin.
In theory, you can take the plunge, as long as you don’t put sums at stake that you can’t afford to lose. But are small investors able to withstand the very high volatility of Bitcoin? Here are some risks linked to investing in Bitcoin ETFs if you’re not a navigated investor.
Regulators’ Warning
Several regulators around the world have warned inexpert investors about putting money into a Bitcoin ETF. If Gensler said a law forced him to vote in favor of the ETF, his colleagues across the globe cautioned investors and raised some concerns.
In Europe, Consob’s chairman, Paolo Savona, said digital assets only acquire market value when someone purchases them, typically using legal tender. That, as Keynes pointed out, always carries a debtor upon its creation – whether it be the State, central bank, issuing institution, or depositary banks. Savona asserts that the absence of a debtor for cryptocurrencies legitimizes the stance of monetary authorities. He classified them as non-legal tender, meaning they do not function as a medium for settling payments or debts.
However, he also noted the challenge faced by financial authorities and legislators in assimilating cryptocurrencies into the existing institutional framework designed for traditional financial activities. This perspective stands in stark contrast to the outlook championed by Fink, showcasing a divergence in their worldviews.
Furthermore, the European Securities and Markets Authority (ESMA) , the main regulator of financial markets in Europe, warned investors. Some days before SEC’s approval, ESMA said it’s necessary to expedite the enforcement of European regulation on crypto-assets (MICA) and promptly designate the competent national authorities.
ESMA said: “This proactive approach is imperative to swiftly fortify the safeguards for savers who find themselves increasingly vulnerable to the escalating threat of crypto-related scams.”
