The demands for establishing a bitcoin exchange traded-fund (ETF) have been percolating around the crypto space for quite some time now. The demands for such an ETF come majorly from institutions willing to invest in the market of cryptocurrency. With all the ETF proposals posed in front of United States Securities and Exchange Commission (SEC) getting rejected, where does VanEck’s proposal for establishing a bitcoin ETF in partnership with SolidX stand? The answer, it might get approved.
With need for such an ETF growing stronger and stronger with each passing day, establishment of a bitcoin exchange traded-fund might just be around the corner as suggested by some experts of the game.
Gabor Gurbacs, the director of digital asset strategy at the New York-based firm VanEck, recently talked about the proposal presented forward by its firm. VanEck’s proposal has been the talk of the town owing to its chances of getting approved by the SEC. SEC has been holding on to the comments regarding the proposal as of now. When asked about the chances of VanEck’s proposal getting approved, Gurbacs stated that:
Unfortunately, I don’t know the answer. I do know that we have addressed market structure issues and this is a chance for regulators to bring bitcoin under existing frameworks and protect investors.
For this proposal VanEck has partnered up with SolidX. The need for such an ETF arises for the protection of investors coming into the market. The ideas presented by this proposal put forward by VanEck are different from the Winklevoss twins’ proposal which got rejected recently.
According to Gurbacs what they are proposing is an insured product and in case of hacks, thefts, and losses; physical bitcoins backing ETF shares would be covered. He also explained that the proposal put forward is purely institutionally oriented. He stated that:
Today, the bitcoin markets are still 90-95 percent retail and institutions are looking for a way to get into these markets so the physical ETF we have tailored to institutions,
Gurbacs is of the view that the firm has the work on its part and is good to go, what happens next remains to be seen.
I think that what most people don’t understand is that there’s a formal process where you go back and forth with the regulators… They might say, ‘Hey, let’s work on this particular topic like pricing,’ and they’ll call us and we’ll look at our indices,
We think we have done the work and the work is good enough to go but again… no one is going to know the date but the SEC.
The acceptance of this ETF can prove to be of major benefits for the institutions entering the crypto space. The main demand that the institutions have is security and transparency. The cryptocurrency world is rife with many scams and fraudulent activities. Being on the blockchain network, the anonymity provided can sometimes prove to be bad for forces entering the crypto world. In the rejection put forward by the SEC to the Winklevoss twins’ proposal, one of the reasons was the prevalence of fraudulent and manipulative activities percolating in the cryptocurrency world. It was stated that:
Although the Commission is disapproving this proposed rule change, the Commission emphasizes that its disapproval does not rest on an evaluation of whether bitcoin or blockchain technology more generally has utility or value as an innovation or an investment. Rather, the Commission is disapproving this proposed rule change because as discussed in detail below, BZX has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.
This decision put forward by the SEC was not regarded as welcoming by many major institutions wanting to enter the crypto world. This decision was also dissented by a commissioner from SEC itself, Hester M. Peirce. Hester is of the view that SEC should not be standing in the way of technological innovations. SEC should not be the one deciding which innovation goes through and which does not. As long as the investors know what they are investing in, that would be enough. By withholding the establishment of a bitcoin ETF, SEC might be depriving the investors of many opportunities for the future instead of protecting them. She stated that:
The Commission’s mission historically has been, and should continue to be, to ensure that investors have the information they need to make intelligent investment decisions and that the rules of the exchange are designed to provide transparency and prevent manipulation as market participants interact with each other. The Commission steps beyond this limited role when it focuses instead on the quality and characteristics of the markets underlying a product that an exchange seeks to list.
Regarding SEC’s stance towards innovation, she stated that:
I think that, historically, the SEC has not been great on innovation, on welcoming innovation, and for me, this order perpetuated my concerns in this regard. We need to have a willingness to welcome new approaches and I’m worried that if we keep sending the message that we’re not open to hearing from people who have new ways of doing things, then people will say we’re going to take our business to another country.
All in all, the formation of a bitcoin ETF seems to be inevitable. If not approved in 2018, a crypto-linked ETF will most probably get approved in the near future. As of now, VanEck’s proposal made in partnership with SolidX seems to have the best chances. It addresses the issues mentioned by the SEC, and has a probability higher than others to get approved.