June was an absolutely tumultuous month for the Bitcoin and cryptocurrency market. In the thirty days in June, investors saw BTC trade in a massive range between $7,500 and $13,900.
On some days, Bitcoin rallied by 20%; on others, BTC fell by thousands of dollars. While many have attributed this volatility simply to growing pains for the digital asset class, one prominent investor — a pro-crypto one not to mention — remarked that the chaos seen in June will decrease the chance that a Bitcoin exchange-traded fund (ETF) sees the light of day.
Bitcoin ETF Acceptance Unlikely
In a July 1st research note, Jeff Dorman, the chief investment officer of crypto finance firm Arca, shared a harrowing thought: June’s volatility has dramatically decreased the likelihood of a Bitcoin ETF garnering approval from the U.S. Securities and Exchange Commission (SEC).
Accentuating the irrationality of the price action seen, Dorman wrote:
“It’s almost a slam dunk now that an ETF won’t be approved any time soon, as an 81% 14-day levered rally, most of which occurred after U.S. trading hours, is not exactly the formula for successful SEC approval.”
Indeed, the rally was, by most definitions, not sustainable or organic. The Arca C-suite member, in fact, noted that the rally was “caused by excessive leverage and outsized risk-taking”, marked by the absurd day-to-day swings and the absurd levels of volume seen on futures exchanges, especially margin-enabled outfits like BitMEX and Bitfinex.
Interestingly, immense volatility has not been one of the SEC’s main concerns with the underlying cryptocurrency spot market. Instead, the American financial regulator has focused its sights on custody, liquidity, and market surveillance — the de-facto tenets of regulated markets.
A perfect case in point is an interview conducted by Bloomberg late last year, during which the then-incumbent SEC Commissioner Kara Stein told applicants to focus on the three aforementioned tenets.
Dorman’s harrowing comment about the likelihood of a Bitcoin ETF making it through the regulatory gauntlet comes hot on the heels of delays of ETF proposals from VanEck and Bitwise. The SEC cited concerns like the lack of prevention tactics against “fraudulent and manipulative acts and practices”.
Despite these long-standing concerns, many are still hopeful that a regulated, U.S.-centric Bitcoin-backed product will soon come to market. In a comment made to CNBC earlier this year, Hunter Horsley of ETF hopeful Bitwise remarked that cryptocurrencies as an asset class are in their “most viable” state ever — making traded funds a logical next step.
And even an SEC commissioner, the venerable Hester “Crypto Mom” Pierce has given her thumbs up to the Bitcoin movement, explaining to an audience a few months back that “the time [for an ETF] was right a year ago”.
Do Crypto ETFs Even Matter?
Despite all the hubbub about Bitcoin ETFs and similar products, many have suggested that there is now little need for such products.
You see, as of the time of writing this, a number of prominent crypto startups, backed by big names on Wall Street, are about to launch their takes on physically-backed Bitcoin futures. Sure, futures aren’t ETFs, I get that. But, the effect said vehicles will have on the market will presumably be very similar.
Just on Monday, ErisX, an exchange backed from Nasdaq and Fidelity to the CME and TD Ameritrade, bagged a derivatives clearing license from the U.S. Commodities Futures Trading Commission (CFTC), giving it the ability to list a future that is backed by Bitcoin.
The week earlier, LedgerX snagged a similar license. And then a few weeks prior to that, Bakkt, the cryptocurrency startup effectively run by the New York Stock Exchange, revealed that it too would be launching physically-delivered futures for Bitcoin.
Whether or not the launch of these products will boost Bitcoin remains to be seen. But one thing is for certain, this market and news cycle isn’t all about ETFs.