Bitcoin ETF: how anarcho-crypto currencies grow middle aged
After hitting a record high on bets the US will approve the world's first mom and pop-friendly fund tied to the digital currency, volatility set in
If you could flip a bitcoin, now might be as good a time as any. It’s certainly a much simpler proposition than trying to work out which side US regulators will land after almost four years mulling over whether to allow the world’s first exchange-traded fund tied to the digital currency.
Investor optimism that the ETF will be approved today by the Securities and Futures Commission drove bitcoin prices to record highs last week. As the SEC ruling draws near, and with an ongoing crackdown on trading platforms in China, the world’s biggest market for the currency, Bitcoin bulls’ nerves started to fray.
Approval could spark a flood of new cash into the market with the potential to almost double the virtual currency’s value, according to bitcoin experts interviewed by Asia Times.
Rejection, on the other hand, could spell slaughter.
Either way, we may be at a tipping point in bitcoin’s nine-year, sometimes checkered past.
The SEC is ruling on an application first made in July 2013 by twin brother investors Cameron and Tyler Winklevoss, who said that the proposed New York Stock Exchange listed fund was “designed for investors seeking a cost-effective and convenient means to gain exposure to bitcoins with minimal credit risk.”
ETFs have proved immensely popular in part because they let individuals invest in assets, such as gold futures or oil, that would have previously been too expensive or restricted to institutions and the wealthy. Since their introduction almost a quarter of a century ago, ETFs have drawn more than US$3 trillion from investors.
At least US$300 million could flow into the fund in the first week of trading should it be approved, said Spencer Bogart, head of research at California-based Blockchain Capital.
And as other funds are lining up behind the Winklevoss brothers —SolidX and Grayscale have both filed applications with the SEC — some investors are trying to get in ahead of the crowd.
“We have spoken to a number of our investors, particularly from the US, who have indicated to us that they have been buying bitcoin,” said Daniel Masters, who oversees Global Advisors Bitcoin Investment Fund. “They think the Winklevoss ETF and other bitcoin ETF listings will succeed.”
Masters isn’t so convinced himself, predicting only a 25% chance the SEC will give the go-ahead.
Bitcoin is a virtual currency that can be used to move money around the world quickly and anonymously, without the need for a central authority. Those qualities have made it an obvious favorite for organized crime gangs and tax evaders.
Regulators may also be wary of giving their seal of approval to a currency that has been dogged by wild price swings and uncertainty over its security, Ofir Beigel wrote in 99Bitcoins, a specialist publication. Tokyo-based Mt Gox, which at one point accounted for about 70% of global trade in bitcoin, went bust in 2014 and reported that about 850,000 of its assets had disappeared.
Now China. The People’s Bank of China this year said it had found irregularities at the nation’s biggest trading platforms, which accounted for about 98% or more of the global bitcoin market. This came as Beijing has been struggling to staunch outflows of yuan, and bitcoins were fingered as a possible route for evading tight capital controls.
Major exchanges have suspended bitcoin withdrawals, ostensibly to put in place tighter anti-money laundering measures.
“We regard the trading activity in China as central to the ‘bull’ case and remain concerned that should the Chinese exchanges become exposed as having facilitated large scale capital flight that their days may be numbered,” Masters wrote in a note to investors, adding that the fund had been selling bitcoin as prices rallied on the expectation the SEC will say no.
And if they’re wrong? “We would expect a very protracted rally,” Masters said, “in which we will quickly seek to participate.”
So, go ahead. Flip a coin. Only maybe don’t hold your breath just yet.
“The decision will only come out on Monday,” predicts Bitcoin Association of Hong Kong’s head, Leonhard Weese. “And … it will be approved.”
–Additional reporting by Reuters