How to view the Bitcoin ETF: a breakthrough or a compromise?

The spring of cryptocurrency may have arrived, but the seasons may change at any time.

The season of cryptocurrency has changed. In 2017, when Bitcoin rose to nearly $20,000 for the first time, regulatory sanctions triggered a “winter” of cryptocurrency, and the low price lasted for almost three years. In May of this year, China’s crackdown on cryptocurrency transactions brought a frost, cutting the price of Bitcoin from its peak of $64,900. After only a few months of freezing, the situation began to warm up again. On October 20th, Bitcoin briefly broke through $67,000, hitting a new high.

The latest craze was an event that attracted worldwide attention, that is, the first Bitcoin-based ETF (Exchange Traded Fund) in the United States was listed on the New York Stock Exchange. The fund is operated by ProShares, a professional investment product manufacturer, and the US Securities Regulatory Commission, as the main market regulator, did not raise objections before the deadline for approval or rejection, which is equivalent to giving it the green light. The exposure provided by the listed fund to investors is not the cryptocurrency itself, but bitcoin futures contracts traded on the Chicago Mercantile Exchange. Regarding this product release, whether it is a milestone event for regulators to take control or a disappointing move, there are divergent opinions.

For cryptocurrency entrepreneurs and traditional financiers, this product launch is a breakthrough. Over the past ten years, many institutions have hoped to be approved for various Bitcoin ETFs, but they have all been rejected or dismissed. In August of this year, Gary Gensler, the boss of the US Securities Regulatory Commission, hinted that he is more inclined to track futures funds, leading to a wave of product filings. Two products will start trading at the end of the month, and some other funds (including products operated by large asset managers) will follow.

With such expectations, existing cryptocurrency investors flocked into the derivatives market. Open positions (capital bet on futures contracts) have reached a record high. People bet that ETFs will attract a large number of individual investors, as well as institutions with huge amounts of funds. The former has always found it troublesome to open an account on a cryptocurrency exchange, and now only needs to open an account at a general brokerage. The latter was worried about the custody of digital assets, but now they can sell their investment exposure to customers without directly holding these assets. The initial market excitement was obvious: Once launched, the price of ETF shares rose by 4%.

Of course, new investors may not come in as many as the bulls expect. Over the years, investors have been able to buy Bitcoin through mobile wallets such as PayPal or brokers such as Robinhood. Institutions can also obtain exposure through tools such as Grayscale  Bitcoin Trust, a private equity fund that allows investors to trade in the form of Bitcoin trust shares, with assets of up to 40 billion U.S. dollars. More and more companies (including staunch supporters such as Mellon and State Street) are also vying to provide institutional-level bitcoin custody services.

At the same time, purists want to have ETFs that directly hold Bitcoin. Funds related to futures need to roll over their investments when the existing futures contracts expire, and also submit a large amount of collateral on the Chicago Mercantile Exchange. Both of these costs are high and will erode profits. However, it is still far away from direct investment in Bitcoin ETF funds. Funds that approve investment in futures allow the US Securities and Exchange Commission to direct investors to regulated exchanges such as the Chicago Mercantile Exchange, facilitating regulators to intervene to prevent wrongdoing. In contrast, Bitcoin is traded in a variety of different venues, many of which are not under the jurisdiction of the US Securities Regulatory Commission, and are notorious for volatility. The spring of cryptocurrency may have arrived, but the seasons may change at any time.

Posted by:CoinYuppie,Reprinted with attribution to:
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