Bitcoin ETFs Gain Momentum Insights from the FCA’s Latest Approval

The History and Evolution of Cryptocurrency

The pseudonymous Satoshi Nakamoto created Bitcoin in 2008, which marks the beginning of cryptocurrency. Bitcoin, designed as a decentralised digital currency, pioneered numerous innovative ideas, including distributed ledger technology and a peer-to-peer electronic payment system that is not dependant on third parties.

Unlike conventional fiat currencies, which are controlled by central banks, Bitcoin is based on open-source blockchain technology, which employs encryption to verify and protect transactions. The Bitcoin network is powered by a decentralised network of nodes that confirm transactions using a consensus technique known as proof-of-work mining.

One of Bitcoin's fundamental breakthroughs is its fixed quantity of 21 million coins, which are distributed via mining, creating digital scarcity comparable to precious metals. Bitcoin pioneered the cryptocurrency asset class by demonstrating that a non-sovereign digital money may have real-world value.

Alternative cryptocurrencies, or altcoins, arose in the years after Bitcoin's inception, using Bitcoin's open-source system to produce coins with unique attributes. Dogecoin and Litecoin are two notable early altcoins. Ethereum subsequently added the capacity to construct programmable smart contracts to its blockchain.

The cryptocurrency ecosystem expanded rapidly, with new blockchain platforms developing for decentralised finance (DeFi), non-fungible tokens (NFTs), and decentralised applications (DApps). As of 2023, there are approximately 21,000 cryptocurrencies on the market, with a total market capitalisation over $1 trillion.

The Investment Case for Cryptoassets

The investing story around cryptocurrencies has shifted dramatically over the last decade. When Bitcoin initially appeared in 2008, it was seen as an experimental decentralised payment network. Today, the investment case for crypto assets has evolved and is centred on factors like as digital scarcity, network effects, and expanded use cases.

The price history of Bitcoin demonstrates its potential as a rare digital asset. Bitcoin surged from around $1 in 2010 to about $20,000 by December 2017, before dropping. After falling below $4,000, Bitcoin experienced a fresh bull market in 2020, pushing the price over $60,000 by early 2021. Proponents claim that Bitcoin's set supply schedule makes it digital gold and a safeguard against inflating fiat currencies.

However, there is ongoing discussion about whether cryptocurrencies can be considered a separate asset class. Crypto sceptics argue that Bitcoin's volatility undermines its status as a store of wealth. However, enthusiasts point to research indicating a poor connection with equities and other assets, suggesting that cryptocurrency might be used as a portfolio diversifier. In any case, crypto assets do not easily fall into conventional categories such as stocks and commodities.

In recent years, cryptocurrencies have garnered public acceptance. Major financial organisations, including Fidelity, NYSE, Visa, and Mastercard, have accepted cryptocurrency. Elon Musk's Tesla has invested $1.5 billion on Bitcoin. This increased institutional usage indicates a larger acceptance of cryptocurrency's investing potential. While dangers still exist, the narrative has definitely evolved from scepticism to serious evaluation of cryptocurrency as an investable asset.

Introducing Cryptofunds

A crypto fund is an investment instrument that gives investors access to a portfolio of digital assets such as Bitcoin, Ethereum, and other cryptocurrencies. Crypto funds have arisen as an easy option for average investors to obtain exposure to this fast rising asset class.

Some significant advantages of investing with a crypto fund include:

• Diversification - Rather than purchasing individual coins, a crypto fund offers quick diversification across a portfolio of digital assets. This helps to reduce the volatility and hazards associated with a single coin.

• Lower entry barriers - Crypto funds allow investors to acquire exposure to digital assets without personally holding, storing, and safeguarding cryptocurrency. This simplifies the process of purchasing, selling, and safeguarding digital assets.

• Active management - Many cryptocurrency funds are actively managed by experts who analyse and trade digital assets in an effort to beat passive market indices.

• Institutional-grade security: Reputable crypto funds hold assets with institutional-grade custody providers, which provide strong security and insurance coverage.

In recent years, there has been an increase in regulatory approvals for cryptocurrency investment vehicles throughout the world. In the United States, the SEC has approved the launch of three Bitcoin futures ETFs. Canada and numerous European governments have also approved Bitcoin and multi-crypto ETFs.

These legislative advancements have cleared the ground for increased institutional adoption of digital asset investment via regulated fund structures. As monitoring improves, investors may feel more confident about investing in cryptocurrency.

Risks and Challenges of Crypto Investing

Investing in cryptocurrencies and digital assets has a distinct set of risks and obstacles, which investors should fully understand before committing capital. Volatility and security are two of the most significant issues.

Volatility

The cryptocurrency market is notorious for its high volatility. The values of popular cryptocurrencies such as Bitcoin and Ethereum are subject to wild fluctuations, both upward and downward. While this allows for speculative profits, it also implies that investors may experience unexpected losses if markets move against them. The fledgeling nature of the cryptocurrency market, as well as moves taken by authorities and celebrities like as Elon Musk, all contribute to this volatility. Institutional adoption may ultimately reduce volatility, but for the time being, it remains a distinguishing element of cryptocurrency investment.

Security

Cryptocurrencies, like other digital assets, are vulnerable to hackers, theft, and fraud. Investors who do not take appropriate safeguards with their private keys risk having their assets stolen. High-profile exchange hacks have caused billions of dollars in damages throughout the years. Although security techniques have improved, dangers persist. Holding assets in cold storage wallets rather than on exchanges may assist reduce security threats.

Beyond volatility and security, cryptocurrencies face unique custody and taxation problems. Professional custody options for institutions are continuously being developed. Furthermore, the tax consequences of cryptocurrency transactions might be difficult due to a lack of clear regulatory guidelines. With the proper measures, knowledge, and partnerships, investors can deal with these sorts of issues. However, they demand particular treatment in the crypto environment.

Getting Started with Crypto Investing

Getting started with bitcoin investment might be intimidating at first. Here are some useful resources for novices who want to learn the fundamentals.

Helpful Communities and Research Resources

• CoinDesk is the leading source of cryptocurrency news and analysis.
• Messari is a cryptocurrency research and data supplier.
• Bankless - A popular cryptocurrency newsletter.
• Reddit Crypto Subreddits - Reddit has active cryptocurrency communities.
• Twitter - Follow top professionals using the crypto hashtag.

Crypto-Wallets

Cryptocurrency wallets enable you to store digital assets and conduct transactions. Wallets exist in a variety of forms:

• Hardware wallets (Ledger, Trezor) are the most secure physical storage devices.
• Software wallets (Exodus, MetaMask) - Apps/programs that store assets on your devices.
• Custodial wallets (Coinbase, Gemini) are managed by a third-party exchange.

A custodial wallet on a well-known exchange might be an excellent place to start for newbies.

Crypto exchanges

Exchanges enable you to purchase, sell, and exchange cryptocurrencies. Several popular beginner-friendly options:

• Coinbase - The top mainstream fiat-to-crypto exchange.
• Gemini, a regulated exchange launched by the Winklevoss twins
• Kraken - Veteran cryptocurrency exchange with a diverse assortment

Look for reliable exchangers that are compliant, insured, and use excellent security methods.

Decentralised Finance(DeFi)

DeFi refers to financial applications that run on blockchain networks. Beginners should know about:

• Stablecoins - Cryptocurrencies tied to fiat currencies for stability.
• Lending/Borrowing: Generate yield by lending assets.
• Decentralised Exchanges: Trade cryptocurrency without centralised middlemen.

DeFi might open up new possibilities, but it also has hazards that must be understood.

Bitcoin: Digital Gold

Bitcoin is often referred to as digital gold because to its resemblance to precious metal. Bitcoin, like gold, has a fixed quantity and a set manufacturing schedule that cannot be changed depending on demand. Bitcoin's total quantity is limited to 21 million, and new bitcoins are created at a continuously declining pace via a systematic process known as mining. This set issuance schedule provides Bitcoin with verified scarcity, which proponents claim makes it an excellent store of value.

The digital gold narrative compares Bitcoin and gold as rare assets that are not controlled by governments or central banks. Aside from being value storage, both have minimal real-world usefulness. Their values are mostly determined by supply and demand dynamics, as well as the cultural meaning assigned to them.

Bitcoin and gold have certain significant investing features, including:

• Non-correlation - Bitcoin and gold prices often fluctuate independently of stocks and other assets, making them useful portfolio diversifiers.

• Inflation hedge - Because Bitcoin has a limited supply, it does not experience inflation in the same way that fiat currencies do when central banks issue additional money. This provides it the capacity to maintain its value when inflation increases.

• Geopolitical hedge - Bitcoin and gold are seen as geopolitical hedges owing to their decentralised, international, and unconfiscatable character.

• Safe haven appeal - Bitcoin and gold have always drawn greater investment amid economic downturns and instability.

However, Bitcoin and gold have substantial differences in terms of mobility, divisibility, security, and transparency. As a digital asset, Bitcoin is simpler to split, move worldwide, and prove ownership. However, gold has a multi-thousand-year history, while Bitcoin is a relatively new asset. Their long-term value propositions are being contested.

Ethereum & Smart Contracts

Ethereum is the second-largest cryptocurrency by market capitalisation, behind Bitcoin. Ethereum, first suggested in 2013 by Vitalik Buterin, was envisioned as a blockchain-based distributed computing platform that would broaden blockchain's use cases beyond digital payments.

Ethereum's fundamental innovation is the introduction of smart contracts, which are self-executing code that runs on the Ethereum blockchain. Smart contracts enable the development and operation of decentralised apps (dApps) without the need for centralised middlemen.

Smart contracts are configured to do actions when specific circumstances are satisfied. A smart contract, for example, may transmit cash to a counterparty automatically when a cargo has been delivered and validated. The words are put straight into code and executed when triggered.

This removes the need for trusted third parties, allowing strangers to transact commerce and engage into agreements directly via code. Smart contracts increase transparency, lower transaction costs, and allow for the automation of procedures.

The Ethereum blockchain runs smart contract code, and Ether (ETH) is the network's native coinage for paying for compute services. Ethereum has created a new universe of decentralised financial (DeFi) applications using programmable smart contracts.

Emerging Usecases and Applications

Cryptocurrencies and blockchain technology are opening up new use cases and applications beyond digital money. Non-fungible tokens (NFTs), the metaverse, and Web3 are among the most fascinating upcoming technologies.

Non-fungible tokens (NFTs)

NFTs have lately grown in popularity as a means of expressing ownership of unique digital goods such as art, collectibles, and virtual land. NFTs are created on blockchains such as Ethereum and enable digital assets to be verifiably scarce, legitimate, and transferrable. The NFT market topped $40 billion in 2021, indicating a significant demand for blockchain-based digital ownership.

The Metaverse.

The term metaverse refers to shared virtual places where users may communicate using digital avatars. Cryptocurrencies and NFTs are projected to drive the economy of these virtual worlds. Major technology firms, including Meta, are spending billions of dollars in metaverse development, anticipating that virtual worlds will be the next generation of social media and the internet.

Web3

Web3 is an umbrella name for a decentralised internet based on blockchain technology. It encompasses ideas such as decentralised applications (DApps), decentralised finance (DeFi), and decentralised autonomous organisations (DAOs). Supporters think Web3 will allow peer-to-peer applications that do not rely on centralised middlemen. However, Web3 is still in its early phases of development.

Cryptocurrencies have evolved well beyond their origins as a type of digital money. These emergent use cases highlight the technology's potential to alter numerous sectors via innovative blockchain-based trust and transparency solutions. However, legislative uncertainties and technological constraints remain barriers to widespread use.

Cryptocurrency Regulation and Policy

The regulatory environment around cryptocurrency and digital assets is quickly changing. While cryptocurrency has traditionally functioned with little regulation, officials across the globe are hurrying to put safeguards in place. This has significant ramifications for investment managers looking into the cryptocurrency market.

One key difficulty is the absence of a defined taxonomy of digital assets. Are cryptocurrencies commodities or securities? The answer differs around the globe. Bitcoin and Ether are considered commodities in the United States, whereas the majority of other cryptocurrencies are classified as securities. The EU regulator has suggested tailored rules to handle digital assets as a distinct new class.

Another significant difficulty is how to tax cryptocurrency profits and transactions. The IRS considers Bitcoin to be property, thus capital gains tax applies. However, things get confusing with forks, staking payouts, NFTs, and DeFi activities. Proper accounting and reporting of cryptocurrency taxes remains challenging.

Ongoing advancements in crypto legislation and policy bring both hazards and opportunity. Thoughtful regulation may boost credibility and drive acceptance. Investment managers should actively watch legislative changes that affect digital assets. Being knowledgeable about compliance and tax issues will be critical to operate effectively in the crypto environment.

The Future Of Digital Assets

The future of cryptocurrencies and blockchain technology seems promising, with increasing tendencies towards widespread acceptance and mainstream integration. As digital assets become more user-friendly and accessible, we may anticipate more public engagement. Key drivers of broader acceptance include:

Mass Adoption Trends

• Improving cryptocurrency infrastructure, such as custody and payments, makes it simpler to utilise in everyday life. Customers may now purchase, trade, and spend cryptocurrency via major firms.
• A generational change, with millennials and Generation Z showing a stronger willingness to use new financial technology. According to surveys, younger groups possess a significant amount of cryptocurrency.
• Geographic spread as cryptocurrencies find momentum in developing economies. Countries with volatile currencies or limited access to conventional banking might profit significantly from cryptocurrency.
• Crypto rewards programmes launched by travel, retail, and entertainment companies to encourage use. Platform collaborations are making it easier to earn and spend cryptocurrency.

Mainstream Integration.

• Large organisations like as banks, financial businesses, and technology corporations are adopting cryptocurrency. Major Wall Street players now provide cryptocurrency asset services.
• Crypto businesses are working with conventional finance to bridge the divide. Payment applications make it simple to deposit and withdraw cryptocurrency as well as money.
• Regulatory clarity is being developed in several countries, offering foundations for cryptocurrency integration. Increased supervision provides credibility.
• Media coverage and public awareness are increasing tremendously. Previously unknown, cryptocurrency is now often mentioned in news and entertainment.
• The crypto sector will become more professional as standards for security, controls, and best practices develop. Mature governance makes cryptocurrency less hazardous.

As these advances progress, we may anticipate digital assets to become a common feature of our financial and technological world. Crypto is moving from speculation to real-world application.