Recently, the crypto community has been actively discussing the prospects for launching crypto ETFs, most of which the SEC is still considering. The expectations and positive sentiment of investors contributed to the temporary growth of bitcoin and the market as a whole. However, not everyone has high hopes for the new tool, and some even see it as a threat. The essence of the tool, attempts to launch and expert opinions on its impact on the crypto market, we examined in the material.
The essence of ETF
An Exchange Traded Fund (ETF) represents a portfolio of assets that is bought or sold through a brokerage company or stock exchange and follows the structure of the underlying index. This instrument is offered for almost all asset classes and can be traded during a trading day..
The main advantage of a crypto ETF is that it allows investors not to work directly with virtual currency. In this case, the underlying assets are owned and traded by the fund. It divides the ownership of the parts that investors claim at the end of the day. ETF shareholders receive a share of the profits from dividends or interest earned.
Current situation with crypto ETFs
So far, the US Securities and Exchange Commission has rejected all applications to launch bitcoin ETFs, including both of the Winklevoss brothers. However, in 2018, several serious organizations at once submitted their own options for consideration. The greatest hopes are pinned on the offer of the Chicago stock exchange CBOE. Nevertheless, the large funds VanEcK, SolidX and Direxion Investments also showed the seriousness of their intentions and submitted worthy applications..
For example, in his letter to the SEC, VanEcK points out that there are no barriers to creating an instrument based on futures contracts and says that data on prices for CBOE and CME will be enough to determine the net asset value of ETFs. It is also said that the bitcoin market is highly liquid with low spread rates, and the average daily trading volume of BTC futures is $ 200 million, which is comparable to the underlying asset market. Representatives of the fund do not exclude the possibility of manipulation, but they are confident that the growth of turnover, diversification of ownership and control of the regulator will reduce the number of frauds and increase stability..
Although Gemini’s second offer was rejected, the decision on Direxion Investments’ application was postponed until the fall. This means that the regulator is carefully studying ideas, so there is a good chance of launching a Bitcoin ETF before the end of this year. However, expert opinions on the implications of the new instrument for the crypto market differ..
Funds will raise rates of indexed virtual assets
Most of the crypto community and experts believe that the approval of crypto ETFs will be a huge step towards the promotion of virtual currencies, their adoption on Wall Street. Since, ultimately, this will allow any investor to indirectly work with coins without fear of shadow schemes thanks to the close supervision of the regulator.
Many believe that the new instrument will attract institutional investors who will be interested in the growth of the underlying asset and will start to stimulate it. In addition to the increase in value, the fund’s turnover, liquidity and coin ownership will increase. A study by the consulting company Capgemini found that 29% of the millionaires surveyed are interested in cryptocurrency.
Analysts at TotalCrypto.io have also looked into this issue. According to their forecasts, within 300 days after the launch of the Bitcoin ETF, the value of the coin will increase by 500%. They also argue that BTC is very similar to gold, so it has huge potential for capitalization growth..
Anton Shugai, head of the blockchain laboratory at brdt.pro, believes that ETFs will become a bridge between cryptocurrency and the traditional securities market. According to him, the main reasons for the lack of institutional investors on the crypto market are the inability to store and insure cryptocurrency accounts. — regulated funds simply do not have the necessary regulations. With the help of ETFs, this problem will be solved, and they will be able to participate in the growth of the crypto market using familiar tools. This will create additional demand for virtual assets and lead to a natural increase in their prices..
Why the Market is Dropping Today [Stocks, Bitcoin, Tesla]
Crypto ETFs May Threaten the Crypto Market
Some believe that there is no need to launch exchange-traded funds for the development of cryptoeconomics, since derivatives do not directly affect the base, but vice versa. In addition, the innovation can attract not only new investors, but also scammers. Conducting transactions with large volumes increases the level of risk.
Some investors say that the collapse of the crypto market began immediately after the launch of bitcoin futures, and they fear a repeat of the ETF scenario. While this will stimulate trading at first, it can ultimately have a detrimental effect. Together with big capital, experienced players will come, who only care about profit, and not about the adoption by the economy of a virtual currency, its distribution, and development prospects. A destroyed pension or crypto fund does not matter on their way to the final goal.
Market Maker Technology CEO and founder Anton Efimenko says it’s hard to say how far and how long the price will fly after SEC approval. You need to understand that the ETF will be on bitcoin futures, that is, there is a layering of derivatives on top of each other. The military-technical cooperation itself will remain on the sidelines. Derivative layering led to the 2000 and 2007 crises. History may repeat itself, and until bitcoin itself is released on the exchange, stability can not be expected.
«The most profitable hedge funds in the world make huge capital only on short positions with leverage, that is, they sell what was very expensive yesterday. Blockchain can only generate profitability within the network. Everything that happens outside this framework is harmful to him. I would not be surprised if after the launch of the ETF on bitcoin futures, an option on the ETF on bitcoin futures appears….» — says Anton Efimenko, adding that this is just a tool for earning traders.
The new tool won’t have a significant impact
Not everyone considers the new tool to be something extraordinary and does not expect global changes in the crypto industry. ETFs usually trade in assets regulated by the SEC or CFTC, but now most virtual currencies do not belong to either. Consequently, the fund trading them will have to register its shareholdings as securities, but the coins themselves will not be affected..
Experts, of course, note the importance of new instruments and their positive impact on the activities of the funds. However, they will not have a direct impact on the development of virtual currencies. Timofey Fortunatov, PR director of the investment company Tugush Blockchain Capital, says the emergence of ETFs does not run counter to the widespread adoption of cryptocurrencies. — it is more a successful step in this direction than a movement in the wrong direction.
Alexey Pershin, founder of the investy.io platform, believes that the SEC approval will open up the opportunity for big money to enter the market, but it is also worth considering the fact that the value of an ETF is determined by the price of bitcoin, and not vice versa. That is, the ETF is not equal to the fact that BTC starts trading on traditional exchanges, but this step is very important for the adoption of cryptocurrencies in general. He also adds that after the initial growth, a serious correction will follow, followed by a stabilization of quotations..
One more step
While expert opinions vary, they all agree that the launch of a crypto ETF is essential on the road to becoming virtual currencies. Regardless of the consequences, the crypto community will be able to attract the attention of large investors and hope for their support. However, Vitalik Buterin recently said that there is now too much focus on new trading tools rather than adapting cryptocurrencies for everyday use..
Virtual assets should form their value through demand and real use, and not through the manipulation of whales. When every store can pay with Bitcoin, trading tools will lose their power and users themselves will regulate the market..
All crypto investors need to not only monitor market indicators, but also be able to interpret them correctly. To simplify the analysis, it is more convenient to use TA and indicators such as «Alligator».
text: Ivan Malichenko, photo: Bloomberg, SOPA Images / iCoins, Xienhua