Hey everybody and welcome to another episode of BLOCKCHAIN CENTRAL!
In today's episode we'll try to break down something that everyone's been talking
about: Bitcoin ETF.
We'll explain the concept and why it's a big deal, and also what's the future outlook
once the SEC finally approves ETF's for Bitcoin.
You've probably been hearing about Bitcoin ETF all over the news for the past year, or so.
What is it all about?
Let's start by breaking down what ETF stands for.
ETF means an Exchange-Traded Fund and it's a security that tracks a given index, commodity
or even an entire industry.
Additionally, ETF's – unlike mutual funds – can be traded on a stock exchange like
any other common stock.
Such funds are particularly appealing to individual investors as they can allow them to participate
in a commodity or industry with a relatively lower barrier to entry.
They also bear much lower fees than mutual funds and can, in principle, be used to diversify
a portfolio.
The challenge is that every single Exchange Traded Fund has to be submitted to the U.S.
Securities and Exchange Commission for approval.
This brings us to Bitcoin.
Establishing a Bitcoin ETF would be a big deal for the entire market, as it would facilitate
easier access to the asset by institutional investors and signal greater acceptance of
cryptocurrency as a financial instrument.
If approved, the ETF would mean that Bitcoin, as a commodity, can be traded on the stock
exchange and various funds would be allowed to participate.
Unfortunately, since the one was proposed on July 1, 2013 by the Winklevoss twins of
Facebook fame, not a single crypto ETF has been approved by the SEC.
Most recently the SEC rejected all of the pending derivative-backed Bitcoin ETF's
filed by ProShares and Direxion and – as of August 2018 – a few more ETF's are
pending approval within the next months.
So, what's the hurdle?
Why aren't these ETFs approved?
The SEC has listed five major obstacles that prevent ETF from getting an OK.
#1 It's hard to deliver a precise DAY NET ASSET VALUE, as cryptos trade across multiple exchanges.
#2 Storing crypto is not clearly regulated
#3 Daily redeemability is not guaranteed
#4 There are few investor protection mechanisms and risk of fraud
#5 There is fragmentation and volatility in the cryptocurrency marketplace
Of course, with every rejection, the entire community learns more about the criteria used
to evaluate the proposals, so each new project should be stronger and have a higher probability
of being accepted.
In addition, major players in the Bitcoin market, such a some of the biggest exchanges,
are working to develop tools to mitigate the issues mentioned by the SEC.
If these entities start cooperating and set up market surveillance tools to reduce market
manipulation, it could mean a major breakthrough in the attempts to have the first Bitcoin
ETF approved.
All in all, the community remains positive with some analysts predicting Bitcoin exceeding
25,000 USD by the end of 2018 if Bitcoin ETF is approved.
What are your thoughts?
Do you think Bitcoin Exchange Traded Funds have a chance of being approved this year?
Let me know in the comments.
Before you go, please note that this content neither represents financial, legal, or tax
advice, nor is it supposed to be understood or interpreted as solicitation to buy or sell
any securities, coins or tokens.
Thank you so much for watching.
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Happy investing!
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