The demands for the establishment of a bitcoin exchange-traded fund (ETF) have been floating around for so long. Institutional investors are leading the charge in this drive. But despite all the fuss and all the rants on the United States Securities and Exchange Commission (SEC) by crypto twitter, the SEC has not yet approved a bitcoin ETF. So why a crypto-linked ETF hasn’t been approved yet? Why is the demand so high? What do the experts think is going to happen? Here are your answers.
The list of issues that has stopped an ETF from getting approved is quite long. Problems like valuation, liquidity, custody, manipulation etc. have acted as major roadblocks.
The reputation of the crypto space has been largely marred by the prevalence of illegal and fraudulent activities. As no central party is involved and all the happenings of a blockchain network, the technology underlying the entire crypto world, are anonymous, the crypto world has remained a major channel for criminals to carry out their operations. Cross-border payments and money-laundering are made very easy as a result of a global financial framework.
Besides, the crypto world has also largely remained a target of major manipulative activities. Price drops and jumps are often seen as a result of movements shown by big whales in the game. Another major issue that has been associated with this world is volatility. One day we see the market shooting up, and the very next day, we see it plummeting down. The trust of investors as a result of such unpredictability is extremely low.
The general public is holding back from entering this space owing to these issues. Cryptos are largely being used by people to gain profits in fiat instead of using them as actual currencies. This is also due to the fact that the adoption of cryptos has not been widespread in the real world. There aren’t many opportunities for the people to use cryptos as currencies to carry out operations in the real world.
SEC’s major aim is the protection of its investors. In January this year, the SEC put out the list of concerns that it had regarding the approval of a crypto-linked ETF with fraud, custody, arbitrage, liquidity, valuation and manipulation being the major ones. Regarding fraud and manipulation, the SEC stated:
The Commission has also discussed concerns relating to the risk of fraud and manipulation in cryptocurrency markets in orders denying exchange proposals to list the shares of commodity trusts that would hold cryptocurrency. In addition, a number of recent media reports have highlighted a range of possible vectors for potential manipulation of cryptocurrency markets. Although some funds may propose to hold cryptocurrency-related products, rather than cryptocurrencies, the pricing, volatility and resiliency of these derivative markets generally would be expected to be strongly influenced by the underlying markets.
Now, why is there so much demand for an ETF? The answer, institutional money, ease of access to the asset, and general acceptance.
As of now, institutions are largely holding back from entering this market owing to the issues that are mentioned above. As a result of this, a large amount of investment money is sitting on the sidelines. The asset, bitcoin, is too ‘dirty’ for the institutions to get involved with directly.
ETF provides a medium for the institutions to get involved in the cryptocurrency world without actually touching the asset. ETF gives institutions an easy to access pathway to bitcoin without actually buying the asset. Without directly selling or buying the asset, institutions can get profits and benefits. Investors can simply buy shares of the asset and can sell them at any given moment based on their speculation.
As institutional money starts to pour in, the market will pivot towards more growth and stability, attracting the general public in as well, hence improving the overall adoption of cryptos.
What Do The Experts Say?
Are we going to see a bitcoin ETF get established? And if yes, then when? Different experts have different opinions regarding this matter. Previously, some stated that we will most likely see an ETF get established in 2018, while the others pointed out that the market is still a long way from seeing a crypto-linked ETF owing to the issues, besides the SEC also needs time to analyze the situation completely. Some also suggest that the hype around the bitcoin ETF is too much.
“We may have an ETF by EOY. If that happens we will definitely get a bump in crypto price.” – Founder Morgan Creek Digital
“If you think an ETF is of value to Bitcoin – you are either a scammer or scammed.” – Dr. Craig S. Wright
“In my opinion, it is unlikely that the ETF gets approved in 2018.” – Anthony Pompliano
“ETF is nothing but short-term play.” – Member Forbes Financial Council
“I wouldn’t be surprised if its established this year. The SEC is delaying the inevitable / waiting for a right time to implement this ETF simply because the demand is there. ” – Eric Thies
“I even don’t understand what’s the “hype” all around these ETF’s.” – Head of Administration Bitcore BTX
“No, this is 2019. SEC need[s] time to analyse, consider, plan a new asset class on this kind of scale. Could even reach to 2020.” – Thomas Power
The verdict seems pretty self-evident. The demands have been rising at an exponential rate and SEC’s major aim is the protection of its investors. Unless the issues like volatility, manipulation etc. are handled properly in the proposals, it is unlikely that the SEC will approve an ETF.
But the environment that has been built around this decision is largely positive now. Some people inside the SEC itself want to give the crypto space the room it requires to grow and expand, and this includes the SEC commissioner Hester M. Peirce who previously showed her dissent on the bitcoin ETF rejection by the SEC.
In recent times, the volatility associated with the crypto market has improved drastically showing positive signs for the world of cryptos. Also, the issues that have been presented forward by the SEC are thoroughly addressed by VanEck in a letter which can be found here. The letter suggests that the market is ready for a crypto-linked ETF and doing so will help this nascent world grow and mature more rapidly.
While 2018 does not seem to be the year for a crypto-linked ETF, as suggested by many, 2019 most likely seems to be the year we will see this happening. If the SEC demands more time for analyzing the situation, the time frame can extend up to 2020. But with so much institutional and general public drive, alongside all the developments being made regarding the adoption of the crypto world, it is very unlikely that the SEC will be able to delay it further than 2020. So, an approval within the next 2 years is expected, and 2019 holds a very strong ground overall.
SEE ALSO: The Big Question – When Will the BTC ETF be Approved?