There have been many that were hoping that the recent launch of Bitcoin Futures by the CBOE and the CME may give rise the eventual adoption of a Bitcoin ETF (Exchnage Traded Fund).
Indeed, even before the launch of any Bitcoin futures, there were companies that were applying with the SEC for Bitcoin ETFs. The famous Winkelvoss twins actually presented this to the SEC last year and were unfortunately disappointed by the result.
However, since the launch of the Bitcoin Future, numerous other companies have filed paperwork for eventual ETFs. The hope was that the precedent set by the CBOE and CME could make more of a case of the established nature of Bitcoin.
Unfortunately, according to a report by Reuters, two of these companies had withdrawn their applications based on particular concerns that were emanating from the SEC.
Mass Adoption on Hold
According to disclosures by the company, the SEC has expressed particular concerns about the liquidity and valuation for Bitcoin futures currently. This is not entirely unreasonable as Bitcoin futures only launched less than month ago.
The trusts in question were Rafferty Asset Management LLC and Exchange Traded Concepts LLC. They were planning on launching three Bitcoin funds and had their applications at the SEC.
ETFs are generally considered an easy way for large asset management firms to track the price of an asset. There are ETFs on a wide range of assets and they are seen as we way for ordinary retail investors to get exposure to an asset which is usually quite hard to invest in directly.
For example, there are ETFs on the price of Gold, Oil and even asset indexes. These are developed and maintained by the ETF management company and the asset managers can easily buy stakes in it on some sort of an exchange.
There were many predictions that if the ETF proposals went through that large amounts of Bitcoin would need to be bought by these ETF firms. Hence, the price of Bitcoin was likely to rally as more people tried to buy the coins.
Volatility an Issue
There is no doubt that the concerns of the SEC are warranted. Bitcoin is a really volatile asset and as such are not suitable for many investors. Bitcoin holders are aware of this and hence are more able to accept the volatility levels.
Many had also pointed out that the ETFs in question would not have been ETFs that comprised of physical Bitcoin but those that were made up of Futures on Bitcoin. Moreover, they would be levered and would rise or fall by twice the original move.
The Bitcoin Futures markets are also not mature enough and the SEC is right in claiming that the liquidity is not quite there yet.
Possible in 2018?
Although this may be a short term blow to the aspirations of a Bitcoin ETF, many are of the view that it is only a matter of time. There is wide scale adoption on the go as firms on Wall Street try to get involved in Bitcoin.
There is also another benefit that the Futures are likely to bring to the Bitcoin markets. As derivative instruments, they allow investors to hedge their positions. This is generally viewed as one of the most stabilising forces for volatility.
Hence, as more investors and traders start providing liquidity for Bitcoin Futures and the volatility falls, an ETF before the end of the year becomes that much more likely.
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