In recent months, investors and traders are concerned about two questions: will the launch of Bitcoin-ETF take place and how would this affect the state of the cryptocurrency market? In this article, we will analyze all available information to find the right answers. And at the same time, we will look into what Bitcoin-ETF is all about, what it is praised for and what it is criticized for!
What is Bitcoin-ETF and how does it work?
The term ETF (Exchange Traded Fund, from the English “stock exchange traded fund”) is borrowed from the traditional stock market – an investment fund whose shares can be traded on the market.
But unlike ordinary shares, which can be traded only once a day (after updating the quotes), ETF shares can be bought and sold at any time. The value of such shares is tied to assets with high liquidity and volatility. Their price can vary significantly throughout the day, and this is a great opportunity to make money on the course races.
In the traditional market for a long time there are funds trading in ETF shares. Most often, their value is tied to gold, oil and other valuable resources.
In 2016, the ETF idea migrated to the cryptocurrency market. But what if you create funds whose shares are tied to the price of cryptocurrency?
For example, a company buys a cryptocurrency and issues shares tied to its value. Investors buy these shares for Fiat and can trade them on the market. When the cryptocurrency rate changes, the value of the acquired shares also changes.
Initially, this idea seemed unrealistic, because, despite high liquidity and volatility, the cryptocurrency market is difficult to control, and this is a serious obstacle to ETF cryptocurrency funds, because their work is regulated by the SEC (American Securities and Exchange Commission).
However, soon the first projects to create funds, whose shares are tied to the value of Bitcoin, appeared. The initiative was filed by the Winkloss brothers – famous investors and popularizers of cryptocurrency. They sent to the SEC immediately 2 applications for the creation of Bitcoin-ETF.
Last year, the Chicago Stock Options Exchange filed an application to the SEC. Today, the Commission is already considering several dozen applications, and the entire cryptocurrency community is awaiting the decision of the American regulator. After all, with the launch of Bitcoin-ETF, many attribute the growth of the entire market.
Why bitcoin ETF can raise the cost of bitcoin and other cryptocurrencies?
The price of cryptocurrency is determined by consumer demand. The more people invest in Bitcoin, the higher its market value. But many are afraid to buy a currency that is not backed by anything and which cannot be “touched”.
In addition, in recent years, the cryptocurrency market is experiencing increased state control. In many countries, operations with cryptocurrency are already regulated at the legislative level (if cryptocurrency is equated to securities – as, for example, in the USA).
What should cryptocurrency developers do to stay afloat?
- Make cryptocurrency operations more secure and convenient.
- Enlist the support of major investors and venture funds to integrate cryptocurrency into the real economy.
- Both of these conditions are met when starting Bitcoin-ETF.
The investor pays Fiat money and receives shares, the value of which is tied to the BTC rate. That is, he can trade BTC without having a cryptographic wallet and an account on a cryptocurrency exchange. He does not need to use blockchain addresses and puzzle over where to store his private keys. He simply receives securities that he can trade in the cryptocurrency market.
Such a prospect is attractive just for large investors and hedge funds. They do not want to invest in assets that have no physical value and that can only be traded on cryptocurrency exchanges. They need the securities with which they are accustomed to working, and such securities can be Bitcoin-ETF shares.
It is in the inflow of large investor capital that many experts see the main reason for the rise in BTC value after the appearance of Bitcoin-ETF. Some analysts call simply incredible numbers: if Bitcoin-ETF shares borrow at least 1% of the investment portfolios of large state-owned funds, the capitalization of BTC will increase to $ 400 billion.
In this scenario, other cryptocurrencies will also catch up with Bitcoin. At least, the first four after BTC, which always grows after Bitcoin.
In addition, if the Bitcoin-ETF project is successfully implemented, we can expect the appearance of funds trading in shares tied to ETH, BCH and other popular cryptocurrencies.
That is, the launch of Bitcoin-ETF can give impetus to the development of the entire market and increase the confidence of traditional investors (and financial regulators) in cryptocurrency.
Not surprisingly, the entire cryptocurrency community is looking forward to SEC approving applications to launch Bitcoin ETF. Arthur Hayes from BitMex predicts that Bitcoin will beat the price record of 2017 and soar to even 50 thousand dollars. But so far it is not clear whether such bright prospects will come true.
Bitcoin-ETF: Criticism and Forecasts of Skeptics
Opponents of Bitcoin-ETF do not share a common delight and cite a number of arguments why the emergence of such funds will negatively affect the cryptocurrency market:
Despite the seeming security of buying cryptocurrencies through stock shares, investors may face a new threat – the so-called counterparty risk. Investors give their money to the counterparty and get the paper, which in theory should confirm their ownership of a certain amount of BTC. But they have no guarantee that these actions are supported by anything. And, in fact, they don’t get ownership rights, because they don’t have private keys.
Entering into the game of large investment funds and brokers can cause a wave of market manipulations. Buying up and selling stocks, large investors will be able to artificially move the Bitcoin rate in the direction they want, and it will be very difficult for ordinary traders who work on cryptocurrency exchanges to foresee their actions.
Possession of ETF shares does not give the right to participate in the development of cryptocurrency. For example, stockholders will not be able to vote on forks. According to many experts, this will allow fund owners who have concentrated a large number of assets to hold forks at their own discretion and press down the market.
The opponents of Bitcoin-ETF have a purely ideological argument – the idea of such funds contradicts the original concept of cryptocurrency, namely the principles of decentralization and independence from counterparties.
Some well-known personalities in the cryptocurrency world (for example, Bitcoin-Evangelist Andreas Antonopoulos and cryptographer Nick Sabo) suggest that the emergence of Bitcoin-ETF over time will crush the price of cryptocurrency and even more loosen in the market, but tend to believe that such funds will appear in the near future . True, so far in the SEC do not agree with them.
How long do we have wait for the decision to start Bitcoin ETF?
The commission should have considered the submitted applications before August 10, but now the announcement of the verdict is postponed to the end of September.
Representatives of the SEC announced that they would make a decision when the applicants will fully respond to questions sent to them about Bitcoin ETF. These questions relate to the safety, status, reliability and transparency of funds and their shares. So far, the Commission has not received satisfactory answers on any application, and therefore postponed their consideration.
The lingering uncertainty affected the Bitcoin course – if in July it grew against the backdrop of waiting for a response from the SEC, then in mid-August it began to fall again. This immediately reflected on the mood in the cryptocurrency community. Some people still believe that the launch of Bitcoin-ETF will take place and will raise the price of BTC, others doubt that the funds will even appear.
Experts from Bloomberg poured oil on the fire, who analyzed the situation and stated that in 2018 Bitcoin-ETF could not be launched.
At the same time, other experts believe that the chances of SEC approval are quite high and cite 3 arguments in favor of a successful outcome:
- Bitcoin has long existed on the market and has a high capitalization.
- Bitcoin futures were approved last year.
- In the US, bitcoin is already partially regulated at the legislative level, because the SEC cannot call BTC an unregulated asset.
Starting Bitcoin-ETF: What should investors do?
Anyway, it will take at least another month to wait for the SEC decision, but general recommendations for ordinary investors can be formulated now:
Even if you do not believe in the success of Bitcoin-ETF, now it’s definitely not worth merging coins. Wait at least for the end of September, when against the backdrop of waiting for a response from the SEC, the price of the coin will go up again.
While the launch of Bitcoin-ETF is questionable, it is better to completely abandon major operations with BTC. If the funds do appear, the price of the asset will go up sharply – this will be the best time for a profitable sale of coins. But if it is clear that the funds are opening successfully and for a long time, it is worthwhile to leave the coins for a long time and sell them when the price rises even more. But even if the Bitcoin ETF will not be launched, it is better not to sell the coins, but to buy them at a low price when other holders start mass-disposing of assets.
You should not hope that ordinary investors will be able to trade shares of Bitcoin-ETF. The minimum threshold for entry into this market will be 20-25 BTC. So only major players will be able to earn on promotions. But ordinary investors will be able to use the course jumps caused by buying and selling stocks.
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