Van Eck CEO Jan van Eck just spoke with CNBC about his company’s third attempt to launch the world’s first bitcoin ETF. The company’s prior two attempts were both shot down by the SEC for various reasons, but van Eck is not about to give up just yet. His comments would suggest that he is more confident now than ever that his company’s bitcoin ETF will soon be a reality.
What is a Bitcoin ETF?
An ETF, or exchange traded fund, is a type of investment that can be purchased on stock markets and that in many ways behaves just like any other stock. It is bought and sold as shares and can yield dividends.
Typically, ETF’s are a way to diversify one’s investments. Many ETF’s, for example, allow an investor to have exposure to a wide number of companies through a single fund only. A popular type of ETF is what’s known as an index fund, where the ETF consists of an equal or weighted number of stocks from a particular set of companies such as the S&P 500 or all companies from a particular industry or field that are listed.
A Bitcoin ETF, on the other hand, would be a fund that is traded in dollars and is valued based on the trading value of bitcoin. There are a number of reasons why this would be revolutionary for the investing world, so let’s go over some of those now.
Giving Old Money Access to New Money
One major stumbling block for cryptocurrencies is that they are in many ways difficult to access for a large number of different types of investors. This is because bitcoin ownership requires a high degree of technical knowledge. Not only must you be able to buy it, but you also need to be able to keep it securely. Not many average investors understand the necessity of a hardware wallet, or for keeping cryptocurrencies in cold storage.
Further, your average investor is not likely to have a deep understanding of how bitcoin addresses or transaction fees work, or what the differences between Bitcoin and Bitcoin Cash are.
The first Bitcoin ETF will be revolutionary because it will allow traditional investors and large institutional investors to suddenly get access to this exciting asset class. Not only that, but they can do so without the need for any technical knowledge or fear of losing private keys.
Another major benefit is investing in a Bitcoin ETF would make keeping track of taxes and capital gains infinitely easier. This is because the tax reporting requirements for owning ETFs are well understood by accountants and tax professionals.
What’s different this time?
The next question we have to ask is why is this filing different than the previous two that failed. According to van Eck, the previous filings were all based on bitcoin futures, and not bitcoin itself. The new fund which exists through a partnership with SolidX will actually hold real bitcoin directly, and not a derivative of bitcoin.
January, 2018 interview between Jan van Eck and CNBC’s Bob Pisani
van Eck said:
“We’re going to keep knocking on the door until they let us through. Persistence is the game here. This is a very different filing than our other filings. The other filings were on bitcoin futures which came out in December of last year. And this one is actually they call it bitcoin physical itself, like GLD. So the trust would own bitcoin not a derivative of bitcoin.”
What about keeping the bitcoin secure, or what if hackers are able to gain access to the fund’s Bitcoin?
van Eck replied: “The SolidX people have arranged for insurance over the loss of the private key which is kind of the best you get these days in terms of custody.”
One major reason for Bitcoin ETF’s being denied in the past is that the SEC was not able to verify the nature of the investment, or how to verify its price and value. With the new ETF slated to directly purchase and hold bitcoin, it should be much easier to justify the fund itself, as well as having a reasonable way to keep track of its price and consequent valuation.
When CNBC report Bob Pisani who just yesterday interviewed Jay Clayton of the SEC yesterday to discuss cryptocurrency asked how confident he was about this third filing, van Eck told Pisani: “We hope so. And it is a dialogue and this is what’s different about bitcoin than other ETF’s that you can launch because the market is changing so much, the market infrastructure.”
Good for Bitcoin?
The only point left to ponder is would a bitcoin ETF be good for bitcoin as a whole?
Generally speaking, that answer should be a solid yes. If the first Bitcoin ETF exists, then more cryptocurrency based ETF’s are bound to follow. These sorts of ETF’s will serve as a stabilizing force for the market because they will represent many millions of dollars of investor funds buying up an equal or larger amount of cryptocurrency from the market and holding it in a secure cold storage medium. This will effectively reduce the circulating supply of the currency, and thus could lead to increased prices over time.
Further, these sorts of funds will make Bitcoin accessible to a larger number of investors, and as a consequence, will increase the profile of cryptocurrencies as a whole, leading to a potential increase in adoption.
Finally, having cryptocurrencies traded on major stock exchanges globally will inevitably lead to cryptocurrencies being seen as a more legitimate and trustworthy investment, and could encourage other major players like banks and investment firms to get involved in crypto.