Bitcoin ETFs may finally make their debut – sort of

Traders work on the New York Stock Exchange (NYSE), August 4, 2021.

Andrew Kelly | Reuters

Cryptocurrency enthusiasts and the exchange-traded fund industry are starting trading for the first Bitcoin Future ETF on Tuesday, when the Pro-Share Bitcoin Strategy ETF will debut on the NYSE.

A catch: The ETF remains active unless the Securities and Exchange Commission objects to the filing, which could take place until midnight on Monday.

Despite the uncertainty, many believe that adversity will start the business as determined in favor of the ETF.

“I would give it a 75% chance of approval,” Dave Nadig, chief investment officer and research director at ETF Trends, told me.

A Bitcoin Future ETF: A Frustration, or a Step Towards the Right Side?

ETFs are based on Bitcoin futures that trade on the CME. This is a frustration for many in the Bitcoin community, who would prefer a pure ETF game supported by physical Bitcoin. They allege that the high cost of rolling out futures contracts will not adequately track the spot price of cryptocurrencies and that the SEC will have to go ahead with pure-play bitcoin ETF approvals.

“A future is a derivative of the spot market, so if you are comfortable with the future, why don’t you feel comfortable in the spot market?” The Grayscale Bitcoin Trust told me. Grayscale indicated that they would like to convert GBTC to Bitcoin ETFs with regulatory approval.

Regardless, most Bitcoin workers – and the ETF community – are encouraging this as a small but critical move to open up the crypto market to a wider audience.

“It’s a crawl, walk, run market,” Matthew Hogan, chief investment officer at Bitwise Asset Management, told me. “The SEC may now take the smallest step to launch the Bitcoin Futures Market because it is a regulated market.”

That fact যে that futures is a regulated market কেন is important to understand why SEC Chair Gary Gensler may allow you to start trading a Bitcoin Future ETF, but not a pure game Bitcoin ETF.

Gensler and SEC have a crypto issue, and a Bitcoin Futures ETF will help

Gary Gensler has a crypto problem. He wants to be a proponent of financial innovation like crypto, but lacks its regulatory authority in important areas such as crypto exchanges.

“Gensler wants to be innovative and still be balanced,” Haugan told me. “He doesn’t want to kill financial innovation [around crypto]. He wants to crack down on fraud and hateful material and criminal activity. He wants to put a regulatory structure around it. “

But it doesn’t have a regulatory structure, at least not yet. Perhaps Congress will have to step in and provide a broader regulatory framework for the entire crypto space, but this is unlikely to happen any time soon.

But as crypto space is growing so fast Gensler is under tremendous pressure to do something. The SEC can claim regulatory jurisdiction without merely fluttering the feathers of other agencies.

Temporary Solution: Allow to start trading a Bitcoin Future ETF.

A Bitcoin Future ETF Virtual Currency Owner allows the general public to get involved without much hassle. First, you don’t have to worry about custody. No one complained that they forgot their exchange password. There is no problem around anyone because of Bitcoin in uncontrolled exchange, whose cyber thefts stole their crypto.

Can a futures market be manipulated?

One of the major reasons why Bitcoin ETFs are not approved is the concern over market manipulation. Similar concerns have been expressed about a Bitcoin Future ETF: The futures market can be manipulated by the spot market.

A Recently published paper, Hogan of Bigwise Asset Management and his associates claim that these concerns are unfounded.

“We have shown that the CME bitcoin futures market is the main source of price discovery in the global bitcoin market,” Hugan told me. “Before Coinbase, Kraken and other offshore exchanges, prices go up on the CME first. The CME is a big dog. The spot market doesn’t move the futures tail.”

Dave Nadig agrees, noting that in the commodity world, prices have long been influenced by futures: “the future where there is liquidity.”

Haugan takes this argument one step further. Yesterday, Bitwise filed for a Bitcoin ETF that would contain real virtual currency, not the future, arguing that the market is mature enough.

“It’s not your grandmother’s bitcoin,” Hugan told me. “It’s a mature market.”

The baby’s first step

The SEC is unlikely to take the next step and approve the pure game Bitcoin ETF, at least not yet. They will probably want more regulatory control over the spot market and more evidence of a regulated market [futures] Doing a good job and not being manipulated by the spot market for Bitcoin.

If ProShares ETF starts trading on Tuesday, others including Invesco Bitcoin Strategy ETF, VanEck Bitcoin Strategy ETF, Valkyrie Bitcoin Strategy ETF, and Galaxy Bitcoin Strategy ETF will probably start trading faster.

Tuesday will be a big day for crypto investors, Hugan said.

“It’s a positive move,” Hugan told me. “People should be encouraged to do this. You don’t see much of such regulatory courage.”

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