The demands for the establishment of a crypto-linked exchange-traded fund (ETF) have been going on for quite some time. As of now, the regulatory body in charge of this matter, the United States Securities & Exchange Commission (SEC), has not approved an ETF linked to cryptos. There is one proposal still left on the SEC’s desk awaiting approval or denial and it was presented forward by VanEck/SolidX.
But why is there so much hype around a crypto-linked ETF? What effects will it have on the market? BlockPublisher recently got in touch with an equity derivatives expert, Anna Yen, who was formerly with JPMorgan. In reply to the question that what effect will a crypto-linked exchange-traded fund (ETF) have on the crypto world, she said:
Having a crypto linked ETF would bring institutional legitimacy and liquidity. Exchange traded funds need to be approved by the SEC, and so far the SEC has been hesitant due to rampant price manipulation. Approval would mean that this hurdle was addressed, encouraging institutional players like banks to create markets and get involved in the market. Larger institutional investors need increased liquidity in the crypto markets to be able to trade meaningfully. As more institutional players jump in, more retail (individuals) would likely follow suit. Overall it would be a boon for market activity in cryptocurrencies.
As pointed out by Anna, the SEC hasn’t approved an ETF owing to the issues such as manipulation. Manipulation is one of the major reasons why the image of the crypto world is so negative in the eyes of the public. Whales present in the market manipulate the prices of cryptos in their favor. Since the market is very volatile, huge price jumps and drops are often seen resulting in severe gains and losses. Besides, the market is highly unregulated which allows for many negative and illegal activities to creep into this space.
But if an ETF gets approved, we might see significant changes in the crypto world. As of now, major institutional players have held back from entering this market owing to problems like manipulation. An ETF might pave out a way for the institutional investors to step into this space and as a result, a large amount of capital is expected to flow into this space. With institutions stepping in, retail individuals might also follow suit and step into this space.
Overall, an ETF will likely help the crypto market, although the impact that it is going to have on the market seems to be unclear as of yet. With uncertainty looming around, it remains to be seen when will we see a crypto-linked ETF getting established.