The most awaited launch in the world of trade is of Bitcoin ETF, a fund that intimates the price of bitcoin which allows investors to purchase an exchange traded fund (ETF) without any hassle and without the risks incurred with digital assets. Multiple exchanges have stepped up to introduce Bitcoin ETF but none have succeeded, courtesy of the strict and thorough regulations set by the U.S. Securities and Exchange Commission (SEC).
Why this urge to launch Bitcoin ETF? What’s stopping it?
Why are exchanges so keen on introducing Bitcoin ETF? What’s in it for them? Is it to boost the price of bitcoin?
First off, the attempts to launch Bitcoin ETF has been going on for quite some time now and no exchange has been successful in doing so, reason being numerous rejections by the US regulatory authority, the SEC. So much potential can be seen in the introduction of Bitcoin ETF and so much so, it is expected to boost the price of bitcoin too, then why the SEC has not approved a Bitcoin ETF yet despite several attempts made?
A news published last year in November outlined the major issues causing disapproval of Bitcoin ETF which include problems like “valuation, liquidity, custody, manipulation, etc”. These concerns have risen due to the unstoppable criminal and illicit activities in the crypto world ever since its evolution. Digital assets have been used for fraudulent activities such as money-laundering and cross-border payments and as a result of lack of security of these assets, frequent hacks occurred in the crypto market which put doubts in investors’ and consumers’ minds. Moreover, the instability of the crypto assets has also left the industry with a big fat question mark. A prime example being bitcoin, whose price has gone down from $19,000 in December 2017 to merely $3,500 now, which shows the vulnerability of the crypto market.
Since then, regulatory authorities have stepped up and imposed laws and regulations that would secure the investors and consumers from such activities, these regulations have inversely affected organizations operating in crypto assets. The U.S. Securities and Exchange Commission (SEC) has played a vital role in regulating the crypto market to protect investors and the market itself. Thus, the constant supervision of the government authorities and the regulations imposed by them have come out as an obstacle for the launch of Bitcoin ETF.
The question remains, why is there so much demand for Bitcoin ETF? As we know, crypto assets are used for making profits in fiat currency by most of the users instead of using them as a currency itself and why is that? Because crypto assets have not been accepted worldwide for trading purposes yet, so the opportunity for users lacks in this regard. Hence, Bitcoin ETF is presumed to be the solution that can be used as institutional money, can be easily accessed to assets and can gain worldwide recognition. This explains the urge to launch a crypto-ETF.
Role of Bitcoin ETF in the world of cryptos
The black spot on the crypto industry is holding institutions back from participating in this market due to which a large amount of investment money sits untouched on the sides. The institutions realize this opportunity but are not stepping forward in order to avoid getting their hands “dirty”, referred to using bitcoin.
By now we all know what comes into play here then, Bitcoin ETF of course. An ETF acts as a pathway for institutions to capitalize on those untouched opportunities without getting directly involved with the cryptocurrency. It can be used as a medium for them to access bitcoin without the need to purchase it. Institutions realize the role an ETF can play in allowing them to access the profits and benefits incurred with bitcoin without trading it, instead they can just hold shares and sell them away whenever need be.
Exchange traded funds (ETFs) are expected to help stabilize the market and contribute in its growth. This will urge the general public to participate in the crypto market as well, enhancing the chances of recognition of crypto assets all over the world under the supervision of regulatory authorities. Not only that, news claims that the approval of Bitcoin ETF might also result in increasing the cryptocurrency’s price, a crypto expert and co-founder of Delphi Digital, Mr. Kevin Kelly stated:
The approval of a bitcoin-backed ETF will likely boost the price of BTC (and as a result other crypto assets) if history serves as any guide. The launch of gold-backed ETFs in the early 2000s granted a wider investor base access to the yellow metal. The increased demand for these products and the broad weakness in the US Dollar helped spur the multi-year run up in gold prices from ~2002-2011.
Mr. Kelly takes gold-backed ETFs as an example that saw prominent growth in the first decade of the 2000s and suggests if bitcoin follows suit, it will most probably repeat history. He further explained bitcoin’s inability to produce similar results as gold till now due to certain factors, saying:
One of the keys reasons bitcoin has not reacted in a similar way as gold to the recent market uncertainty is the lack of accessible, liquid investment products. Many individual investors hold gold as a portfolio hedge, but a large source of demand for the precious metal comes from institutional investors. Institutional ownership, measured by the most recent set of 13F filings for Q3 2018, of the two largest physically-backed gold ETFs (GLD, IAU) averages ~44%, according to Nasdaq. Demand for gold tends to rise during periods of heightened uncertainty in riskier asset classes (i.e. stocks) as institutions adjust their allocations to market conditions. There is not a lot of ownership overlap between gold and crypto assets currently, at least at the institutional level.
It has not YET but it surely can. Hopes for Bitcoin ETF to give the cryptocurrency a massive boost are still high, it isn’t impossible, difficult yes but it has happened before so why not once again?
Experts’ opinions about Bitcoin ETF
Not everyone roots for Bitcoin ETF to be the source of revival of the crypto industry, experts have had mixed feelings about the launch of Bitcoin ETF, some vote in favor, while some consider it to be nothing more than a scam.
The founder of Morgan Creek Digital, Mr. Jason A. Williams also holds the opinion that the launch of a crypto-related ETF will surely give an uplift to bitcoin and help crypto assets gain acceptance, he said:
This will lift the whole market but BTC will be the big winner.
Where most people believe Bitcoin ETF to be the elevator of the crypto world, known economist, Dr. Craig White believes:
If you think an ETF is of value to Bitcoin – you are either a scammer or scammed. Bitcoin is cash, use. Let BTC have an ETF, it will end BTC.
His views oppose that of the general public, claiming that instead of uplifting the cryptocurrency, Bitcoin ETF will prove to be the finisher of bitcoin.
These are the two schools of thought in the crypto market for now, where one believes Bitcoin ETF will help raise bitcoin as well as the the crypto industry and the other opposes the claim to suspect that a crypto-related ETF is merely a scam which will eventually end the cryptocurrency itself.
When is Bitcoin ETF coming?
It feels like forever, since the news of Bitcoin ETF to be launched first came into the headlines. Confusion of when will it be launched and what is the progress on this matter has kept institutions and investors on the edge of their seats.
It all started in 2016, when Math-Based Asset Services LLC filed the first ever application for a Bitcoin ETF called Winklevoss Bitcoin Trust but the application was soon rejected by SEC in March 2017, followed by a request to review the disapproval which later on was announced as inconsistent with the Securities Act of 1933.
Since then, multiple exchanges have filed for a Bitcoin ETF but have all been rejected by the SEC due to non-compliance with the standards set by the regulatory authority. Thus, the wait for the launch of a Bitcoin ETF is still in place.
Reports from last month claimed that Bitcoin ETF’s introduction in 2019 is doubtful as no applications were pending due to financial market distress. However, the latest news on this matter is that a Bitcoin ETF might soon be approved by the SEC as Mr. Robert J Jackson Jr., U.S. Securities and Exchange Commissioner optimistically said:
I’m happy to say market participants have begun to come in with ideas. Whether or not we’re going to find one that really protects investors I don’t know, but I do know that that case wasn’t especially close.
Eventually, do I think someone will satisfy the standards that we’ve laid out there? I hope so, yes, and I think so.
Mr. Jackson positively stated the possibility of a Bitcoin ETF to be launched any time soon now as he expects exchanges to finally comply with the standards set by the SEC sooner than later.
The noise is quite clear now in the crypto world for a Bitcoin ETF’s launch, institutions have realized the need of it, exchanges have taken progressive steps towards enhancing their applications or at least are expected to and government authorities have also exhibited positive remarks about the introduction of a Bitcoin ETF, claiming it to be “only a matter of time now”.