Anyone keeping half an eye on the cryptocurrency industry will have heard the words “Bitcoin ETF proposal” recently.
Ever since the Winklevoss twins filed their first request in 2013, Bitcoin ETFs have become a Holy Grail. In fact, the markets have been sent crashing by delayed or denied Bitcoin ETF decisions over the years. This leads us to a pertinent question (in case you felt too silly to ask): WTF is a Bitcoin ETF proposal?
Let’s step back a little – What is an ETF?
While we’re on the subject, what exactly is an ETF and how does it work with Bitcoin? Briefly, ETF stands for exchange-traded fund. ETFs are one of the fastest growing investment products globally and are widely used by millions of investors.
You can buy and sell them like shares on a stock exchange. But unlike shares, they aren’t a representation of a stake in a business. ETFs are investment funds that can invest in just about anything, such as a portfolio of shares or bonds.
An ETF’s value represents the value of the underlying investments, and most only invest in one asset class – hence the birth of a Bitcoin ETF.
Globally, more than $5 trillion is held in ETFs, and they’ve become popular for several reasons. First of all, they allow for diversification, since you’re buying exposure to all the fund’s investments in one single trade. They’re also highly liquid and easy to buy and sell, trading every day with no minimum investment.
What is a Bitcoin ETF?
Hot on the heels of the rising popularity of ETFs, talk of Bitcoin ETFs has been stepping up a gear. It took US regulator the SEC four years to reject the Winklevoss Bitcoin ETF proposal. They cited the possibility of fraud or manipulation among the main reasons, along with lack of regulation.
But Bitcoin ETFs are a hot topic since they would allow institutional investors to get in on the game. A Bitcoin ETF basically mimics the price of Bitcoin. It allows investors to enter the world of digital currency without having to jump through hoops, open exchange accounts, or trade Bitcoin itself. They also don’t have to worry about hackers or think about cold storage to keep their assets safe.
At this point, you may be thinking, why not just invest in Bitcoin itself? Why throw a middleman back into the equation when that’s one of the most attractive aspects of Bitcoin?
Well, especially for more conservative or institutional investors, a Bitcoin ETF means that they don’t have to worry about the security aspects of holding their own Bitcoin or using exchanges. They can simply buy and sell through the traditional markets they feel comfortable with.
Moreover, Bitcoin ETFs give them greater flexibility. As an investment vehicle, investors can short sell their shares in the ETF if they think the price is likely to go down.
But probably the most important aspect of a Bitcoin ETF is the fact that traditional investors (both retail and institutional) simply feel more comfortable investing in a regulated way without the steep learning curve.
What is a Bitcoin ETF proposal?
A Bitcoin ETF proposal is when a firm, such as CBOE or the Winklevoss twins’ Gemini, puts in an application to the SEC for permission. To date, there has still been no Bitcoin ETF approved. But it does appear that we’re getting closer to this every day. So far, the SEC has rejected multiple ETFs, denying nine proposals in one fell swoop in August 2018.
The Winklevoss twins also tried again with a Bitcoin ETF proposal last year but it was voted down again. Investment management firm VanEck has also submitted multiple Bitcoin ETF proposals which they have been asked to withdraw or had the decision delayed. They keep trying though, and their latest proposal is backed by CBOE, who launched Bitcoin futures in December 2017. VanEck resubmitted their latest Bitcoin ETF proposal on January 31st, 2019.
The recent government shutdown in the United States has not helped move decisions along, leaving the SEC paralysed and running with little manpower. The agency is still concerned about the lack of regulation in the space and hesitant to approve an ETF in an asset that remains very new and volatile.
Wrapping it up
Most people in the industry, including insiders in the SEC, are confident that a Bitcoin ETF will finally be approved in 2019. And it’s very possible that it will be the CBOE/VanEck proposal. An SEC approval of a Bitcoin ETF proposal would be extremely bullish for the cryptocurrency market since it would be a nod toward the legitimacy of Bitcoin. It would also allow a cut of those trillions of dollars of investment to enter the market.
As ETF funds invest in BTC and investors invest in ETF funds, the market cap of Bitcoin can only rise and institutional investors can finally enter the market. A Bitcoin ETF approval would be huge for the industry, and it’s likely now no longer a question of ‘if’ but ‘when’.