September 17th, 2018
Bitcoin ETF. Two simple words, which when paired together, induce the most extraordinary of reactions. Dropped into the right channels, the words can tear apart well-knit communities, igniting a flame war that would put football fans to shame. Bandied about at other places, they can spark frenzied Bull runs, only to gore the excited matadors into an unexpected bloodbath.
So what is this Bitcoin ETF anyway?
An ETF, or an Exchange Traded Fund, is just a tradable security backed by an underlying basket of assets. Crude oil, for example, has various ETFs, which let an investor get a handle on its price action without having to actually store barrels of the stuff. Similarly, an ETF for Bitcoin would enable a much easier way of getting hold of the coveted digital asset, bypassing the usual hoops of crypto exchanges and hardware wallets.
The reason this is such a big thing is that so far, the rate of adoption of cryptocurrencies has been pretty abysmal. Leaving aside a small fraction of technologically savvy users, virtually few have heard of, let alone ever possessed any cryptocurrency. A Bitcoin ETF thus, can come as a shot in the arm for this fledgling space, opening up the sector to a much wider segment of the population.
And then there is Wall Street.
Institutional investors, like hedge fund managers, are debarred from participating in unregulated markets like crypto, keeping the financial bigwigs of the investing world out of this brand new opportunity. An approved ETF, however, would provide a valid entry point for these investors, bringing in a flood of institutional funding into Bitcoin.
For the average retail investor (like you and me), this translates to a spur in prices, breaking out of this never ending bear market to a rampant bull run. The team at Total Crypto suggest that the surge in prices following an approved ETF could well break all records, taking Bitcoin’s valuation to historic highs.
But not everyone is enthused. The truebelievers of Bitcoin, the dreamers of the crypto dream from back when Blockchain was a nascent innovation, are vehemently opposed to an ETF. While the common investor is fixated only on the potential monetary gains of such a move, these die-hard supporters are more concerned about its impact on the technology itself, and the ethos behind it.
You see, Satoshi Nakamoto created Bitcoin to put money in the hands of everyday, ordinary people, freeing them from the shackles of centralized institutions and government control. By wrapping up Bitcoin in the financial instruments of these very institutions, we risk killing the very reason of its existence, rendering it as another playground for Big Money and its economic shenanigans.
For Bitcoin is intended, above all, to be a currency, a medium of exchange in an increasingly decentralised world. To use it just as a vehicle of investment is an affront to the ideals that birthed it, and the squandering of the golden chance that it represents.
Yet the development is all but inevitable, with someone proposing a Bitcoin ETF every other day. The Winklevoss twins, Direxion, Proshares, GraniteShares…everyone wants a slice of the ETF pie, and they are not going to let up until they get it.
So far, the SEC has proved unyielding, having shot down each and every ETF proposal on some pretext or another, but its objections are beginning to run out. The VanEck-SolidX application, backed by the illustrious Chicago Board Options Exchange, is seen by many as the proposal with the best chances of success. Not only does it have the heavy-weight name of CBOE behind it, but by limiting the investment to shares of 25 bitcoins each (tallying up to an excess of $150k), it keeps the average retail investor outside its purview, sidestepping many of the SEC’s concerns. Also, the baskets will comprise of real Bitcoins, avoiding the questions of the lack of sufficient liquidity faced by the futures based proposals.
While the SEC is scheduled to deliver a decision on September 30, I wouldn’t hold my breath; the commission is known to repeatedly delay the day of reckoning until the last possible moment, which in this case would be the 27th of February, 2019, so expect nothing concrete before then.
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