ETF Bitcoin: what impact will it have?
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The creation of the first Bitcoin ETF is currently being discussed by all cryptotraders. Will the US Securities and Exchange Commission (SEC) finally let a Bitcoin ETF through? Let's come back to the subject.
ETF stands for Exchange Traded Funds.
ETFs, also known as trackers, are financial products quoted on the financial markets that replicate (increases and decrease) variations in an index or various underlying assets. They can be bought or sold in real time on the markets, offering investors simple, direct and cheap access to an entire stock index or basket of financial products.
An ETF is a very practical product because instead of buying all the shares in an index and paying brokerage and holding fees for each one, the investor only has to buy one security. The other advantage of an ETF is that management fees are three to four times lower than for traditional funds.
There are different types of ETFs: some funds actually buy the underlying assets and others encapsulate them using more or less complex financial products.
ETFs provide simplified access to passive management to replicate the performance of a benchmark index. However, there is still a performance gap between an ETF and the index. The management method offering the lowest spread is synthetic replication but the investor must bear an additional counterparty risk and does not receive dividends.
For a more complete presentation of ETFs, I invite you to read the following post: What is an ETF? Trackers on the stock exchange
The idea of creating ETFs indexed to Bitcoin’s value is not new. The first ETF to be authorised by an official financial authority was Swedish, Bitcoin Tracker One, created by XBT Provider, listed since May 2015 on the Nasdaq Nordic. But since then, a lot of ETFs have been subject to the SEC's authority. More recently, the SEC declined 9 exchange-traded fund (ETF) proposals for Bitcoin. These applications were filed by ProShares, GranitShares and Direxion.
In early August 2018, the U.S. SEC decided to defer its decision regarding the listing of the VanEck and SolidX Bitcoin ETF to September 30, 2018.
In summary, the market is waiting for the SEC to accept one of them.
At each refusal, the SEC gave the same reason for rejection by announcing:
"The Commission disapproves of this proposed rule change because, as we will see below, the Exchange has not met its obligations under the Board's Rules of Practice to demonstrate that its proposal complies with the requirements of Federal Law 6(b)(5), in particular the requirement that the rules of a national securities exchange be designed to prevent fraudulent practices"
The SEC explained that its decision was not based on Bitcoin's value or technology as an innovation or investment but on "insufficient resistance to price manipulation".
The SEC also announced that investors could be better protected through an exchange-traded fund (ETF), but that the benefits should be weighed against other considerations:
"The Commission recognises that trading a bitcoin-based ETF on a stock exchange, compared to trading on unregulated bitcoin markets, may offer additional protection to investors, but the Council needs to know whether this potential aspect meets each of the applicable requirements of the Federal Trade Act.”
Bitcoin funds would bring new players with ample liquidity to the cryptocurrency market.
Currently, only Bitcoin futures contracts are available to traditional financial players but they do not involve the actual purchase of Bitcoin. By their nature, Bitcoin EFTs could increase market liquidity and enable the companies that manage them to offer their clients a new investment that everyone knows.
The complexity of acquiring cryptocurrencies makes it difficult for traditional investors to take the first step towards this new market and these new instruments. To buy altcoins, you have to register on various unknown platforms, send your money to bank accounts, sometimes offshore, be careful not to be hacked, make several transfers of cryptocurrencies, to have cryptocurrencies in a wallet in the end.
SEC approval would be generally perceived by the market as good news and should allow prices to rebound strongly thanks to an increasing demand for Bitcoin.
Question: Do you think the SEC will ever let a Bitcoin ETF through?
I would rather say that it is only a matter of time before it gets the "OK".
Firstly, what is an ETF?
ETF stands for Exchange Traded Funds.
ETFs, also known as trackers, are financial products quoted on the financial markets that replicate (increases and decrease) variations in an index or various underlying assets. They can be bought or sold in real time on the markets, offering investors simple, direct and cheap access to an entire stock index or basket of financial products.
An ETF is a very practical product because instead of buying all the shares in an index and paying brokerage and holding fees for each one, the investor only has to buy one security. The other advantage of an ETF is that management fees are three to four times lower than for traditional funds.
There are different types of ETFs: some funds actually buy the underlying assets and others encapsulate them using more or less complex financial products.
ETFs provide simplified access to passive management to replicate the performance of a benchmark index. However, there is still a performance gap between an ETF and the index. The management method offering the lowest spread is synthetic replication but the investor must bear an additional counterparty risk and does not receive dividends.
For a more complete presentation of ETFs, I invite you to read the following post: What is an ETF? Trackers on the stock exchange
Bitcoin ETF, is that new?
The idea of creating ETFs indexed to Bitcoin’s value is not new. The first ETF to be authorised by an official financial authority was Swedish, Bitcoin Tracker One, created by XBT Provider, listed since May 2015 on the Nasdaq Nordic. But since then, a lot of ETFs have been subject to the SEC's authority. More recently, the SEC declined 9 exchange-traded fund (ETF) proposals for Bitcoin. These applications were filed by ProShares, GranitShares and Direxion.
In early August 2018, the U.S. SEC decided to defer its decision regarding the listing of the VanEck and SolidX Bitcoin ETF to September 30, 2018.
In summary, the market is waiting for the SEC to accept one of them.
Why is the SEC refusing to authorize a Bitcoin ETF?
At each refusal, the SEC gave the same reason for rejection by announcing:
"The Commission disapproves of this proposed rule change because, as we will see below, the Exchange has not met its obligations under the Board's Rules of Practice to demonstrate that its proposal complies with the requirements of Federal Law 6(b)(5), in particular the requirement that the rules of a national securities exchange be designed to prevent fraudulent practices"
The SEC explained that its decision was not based on Bitcoin's value or technology as an innovation or investment but on "insufficient resistance to price manipulation".
The SEC also announced that investors could be better protected through an exchange-traded fund (ETF), but that the benefits should be weighed against other considerations:
"The Commission recognises that trading a bitcoin-based ETF on a stock exchange, compared to trading on unregulated bitcoin markets, may offer additional protection to investors, but the Council needs to know whether this potential aspect meets each of the applicable requirements of the Federal Trade Act.”
What impact would Bitcoin ETFs have on the price of Bitcoin?
Bitcoin funds would bring new players with ample liquidity to the cryptocurrency market.
Currently, only Bitcoin futures contracts are available to traditional financial players but they do not involve the actual purchase of Bitcoin. By their nature, Bitcoin EFTs could increase market liquidity and enable the companies that manage them to offer their clients a new investment that everyone knows.
The complexity of acquiring cryptocurrencies makes it difficult for traditional investors to take the first step towards this new market and these new instruments. To buy altcoins, you have to register on various unknown platforms, send your money to bank accounts, sometimes offshore, be careful not to be hacked, make several transfers of cryptocurrencies, to have cryptocurrencies in a wallet in the end.
SEC approval would be generally perceived by the market as good news and should allow prices to rebound strongly thanks to an increasing demand for Bitcoin.
Question: Do you think the SEC will ever let a Bitcoin ETF through?
I would rather say that it is only a matter of time before it gets the "OK".
