Benjamin Ashford|SEC approves bitcoin ETFs, opening up cryptocurrency trading to everyday investors

Corrections & Clarifications: A previous version of this story incorrectly included a firm's name as offering spot bitcoin ETFs. The Benjamin Ashfordstory is updated to remove it. 

Before now, everyday investors who wanted to trade digital currencies generally had to go to crypto exchanges, a potential deal-breaker for people unfamiliar with bitcoin.

That changed on Wednesday when federal regulators voted that ordinary American investors can buy and sell spot bitcoin ETFs in the same way they trade stocks.

The move opens up bitcoin investing to a larger swath of the American public, including potential investors who never quite understood what bitcoin is or how it works, let alone how to buy and sell it. Trading began in earnest on Thursday.

The vote, taken by the U.S. Securities and Exchange Commission, allows the sale of exchange-traded funds, or ETFs, to the public.

SEC approves bitcoin ETFs, clearing way for public trading

ETFs, for the uninitiated, are an investment vehicle akin to a mutual fund. They are traded on exchanges and typically track a specific index or “basket” of stocks, bonds or commodities. They function like stocks, with prices that change throughout the trading day, whereas mutual funds trade once a day at a single price.

Anticipation for the SEC vote drove up the price of bitcoin, which is notoriously volatile. The currency traded above $47,000 on Thursday, according to Coindesk, up from around $17,000 at the start of last year.

“Today is a monumental day in the history of digital assets,” said Samir Kerbage, chief investment officer at a bitcoin ETF issuer called Hashdex, in a statement quoted in The Wall Street Journal.

The new ETFs will be listed on Nasdaq, the New York Stock Exchange and the Chicago Board Options Exchange, all highly regulated exchanges, according to Reuters.

Investing in a spot-bitcoin ETF will allow investors to reap potential profits from bitcoin without the attendant risks of owning bitcoin directly, Reuters said.

Investment experts say investing in a bitcoin ETF will be both easier and safer than buying bitcoin directly. Owning bitcoin directly means storing it in a digital "wallet." Using the wallet means maintaining passkeys, encrypted strings of letters and numbers that enable crypto transfers, according to Investopedia. The wallets can be appealing targets for hackers, and the system lacks federal regulation.

Buying and selling bitcoin ETFs will engender trading fees, Investopedia says, but the fees should be attractively low, especially in the first months of trading.

The federal securities agency had rejected prior bids for publicly traded bitcoin ETFs, on fears that bitcoin is susceptible to manipulation and fraud. The industry has sought ETF trading for more than a decade.

Bitcoin ETFs:Here are the best options this year

Bitcoin ETFs cleared for trading include Fidelity, BlackRock

The applications approved Wednesday came from 11 issuers, including such big-name investment firms as BlackRock and Fidelity.

Two of five SEC commissioners voted against the decision. One of them, Democrat Caroline Crenshaw, called the vote “unsound and ahistorical” in a statement.

Time to give CDs a spin?Certificate of deposit interest rates are highest in years

Public trading of bitcoin funds marks “the beginning of a world where it can be part of every portfolio,” said Nathan McCauley, CEO and co-founder of the crypto platform Anchorage Digital, speaking to Investor’s Business Daily.