What Exactly is Bitcoin ETF
We’ve all heard about it, the Bitcoin ETF. It is supposedly on its way and it will apparently be a really good thing for investors. But we aren't entirely sure why, some people are even saying it’s a bad thing. You may have even heard that the SEC (Securities Exchange Commission) has recently either denied or postponed decisions on some ETF applications which may have contributed to the current bear market. What does this all mean?
What is an ETF?
Put simply, an ETF stands for Exchange Traded Fund. It is one type of fund that is essentially a representation of a pool of other investments (like stocks or bonds) and so it is treated like a security. It is managed by a distributor who handles all of the investment and trading decisions that go into giving the ETF it’s value. ETFs are generally available to the public, are easy to buy and management is minimal — hence why they are popular with average investors. Here is a helpful table taken fromthis blog piece by Jordan Clifford that highlights how an ETF compares to other funds:
What can an ETF do for price?
The general theory is, that because an ETF is another onboarding investment vehicle for a commodity (or in this case, a currency like Bitcoin), it will increase interest among new/investors. Also, because ETFs are publically available and so easy to invest in with little knowledge of investing or need to manage a portfolio, an ETF for something like Bitcoin makes a lot of sense. Bitcoin is specifically designed to be owned and managed independent from any third parties or centralised bodies. This might very well be keeping some people away from buying it as the difficult level of entry and the fear of mishandling wealth is a real concern for many. As such, a Bitcoin ETF will provide a way for millions of people to ‘buy’ Bitcoin in a safer, more predictable way.
More buyers means higher demand, higher demand on a capped commodity means high price. For example, take a look at what happened to the price of gold immediately after the introduction of gold ETFs in March 2003.
This is what many cryptocurrency investors and holders are expecting will happen if and when a Bitcoin ETF is passed.
Who gets to decide on passing an ETF?
As mentioned above, because an ETF is treated like a security investment, the SEC has to approve their trading. Finance and investment bodies can apply to the SEC to list their own Bitcoin ETF, and many have. This is why you may have heard that the SEC recently rejected 9 separate ETF proposals, including the Winklevoss Twins’. Some are hopeful that the Chicago Board Options Exchange (CBOE’s) proposal will be the one that gets accepted, you can read more about it here.
What does an ETF mean for something like Bitcoin?
We already know that an ETF will likely increase the market price of Bitcoin, at least in the short to medium term. However, not everyone is agreed that it is a good thing for the cryptocurrency space. Most opposition to crypto ETFs come from those who are interested in cryptocurrency for philosophical reasons and are less concerned with meteoric price increases. For example, in this video, Andreas Antonopoulos details why he thinks that allowing someone else to own and manage your Bitcoin (as an ETF would allow) is not the intended use case of Bitcoin and strays from Satoshi’s vision of a decentralised peer-to-peer cash and store of value.
“ETFs fundamentally violates the underlying principle of peer-to-peer money, where each user is not operating through a custodian but has direct control of their money because they have direct control of their keys”.— Andreas Antonopoulos —
So what can we expect?
As ever in the crypto space, it is hard to say. Andreas thinks the Bitcoin ETF is inevitable and it is hard to disagree. The likely price increase will be nice to see — but I think I come down on the side of those who worry that treating revolutionary technology merely as a means to increase our stockpiles of fiat is not in our best interest. Handing over control of what has always been a decentralised peer-to-peer currency to be managed and traded by traders and traditional investors seems counter to the original vision and hopeful end-goal. However, an ETF will also bring an enormous wave of new interest into the space — which can only be a good thing in the end.
Written by: Glen Veitch