A watershed moment, maybe, but be careful what you wish for

THE launch of the bitcoin ETF is being described as a ‘watershed moment’.

Suddenly crypto- currencies seem to be stepping out of a scandal-ridden past into semi-respectability. The launch of 11 funds by US giants like Blackrock and Fidelity could almost give the impression they are mainstream.

Not long ago, buying crypto used to be prompted largely by a fear of missing out, amplified by social media messaging.

Cathie Wood, the US fund manager who believes bitcoin is ‘a public good’, says US savers have ‘democratised access to innovation’. But funds will not give exposure to the blockchain ledger technology that underlies crypto-currencies. Blockchain’s possibilities truly are infinite.

The SEC’s decision highlighted bitcoin’s volatility – and may aggravate this. The digital currency was trading at close to $50,000 yesterday, against a peak of $69,000 in November 2021. It tumbled to $16,000 in December 2022 amid the collapse of the FTX exchange whose catastrophic operations confirmed worst suspicions about crypto.

There will be calls for the UK watchdog, the Financial Conduct Authority (FCA), to make bitcoin funds available to British investors who cannot, for regulatory reasons, buy the US funds.

It will be argued such arrangements will end the risk of holding crypto directly.

But those who agitate for such funds should be careful what they wish for. Lindsay James strategist at Quilter Investors reminds us: ‘Bitcoin remains an incredibly speculative product.’

Ben Yearsley of Fairview Investing says: ‘ Bitcoin isn’t a real currency, it isn’t backed by any government and isn’t particularly easy to spend.

‘It isn’t a store of value like gold – so what purpose does it hold?’

If you would still like a stake in a bitcoin ETF, then it may still be possible.

Jason Hollands of Bestinvest thinks some multi-asset UK funds will take stakes. But there is a broader issue here.

The SEC’s move reflects confidence in the financial literacy of Americans, trusting that millions will hold back from sinking all their life savings in crypto. The general level of knowledge in Britain is far lower.

As a result, the FCA would be concerned that bitcoin funds would leave millions of people ruined, or ‘rekt’ as they say in crypto slang.

Whatever your views on bitcoin, it is a shame that a lack of financial education in our schools means that we cannot be treated like grown-ups.