The cryptoverse has been abuzz with anticipation of the US SEC potentially allowing bitcoin ETFs. But some crypto “Old G’s” like Andreas Antopolous and The Crypto Crow see an ETF as being nothing more than unwanted (and unneeded) interference. Specifically, they feel the very institutions which arguably lit the fire from which bitcoin was born in the 2008 financial crisis are behind them. Others, drawn to the crypto market by potential financial gains see ETFs as a good move for bitcoin, increasing its appeal and catchment area – thus driving up the price.
Recap: What Is An ETF?
In basic terms, an ETF is a type of fund which one can invest in. You do not own the commodity the fund is backed by, but you can gain exposure to that market just by holding shares. In this case, the fund will be backed by bitcoin that is bought and owned by the ETF manager.
ETFs allow people invest without the custodial risk of ownership – with bitcoin that means holding the private keys and exposing yourself to risk of theft or hacking attacks. It also means a much easier tax filing once tax season rolls around.
Would an ETF be Good for Bitcoin?
Whether or not an ETF would be good for bitcoin or crypto in general depends on your point of view. For many, particularly those who are backing the technology by holding their coins, as well as those who like the idea of having total control of their finances, they largely consider this a bad move.
The common argument is that bitcoin simply does not need institutional investment or involvement, and is in their opinion better off without it. This is because institutions, who will be operating financial vehicles such as ETFs, will be holding large amounts of bitcoin. How large? Potentially tens if not hundreds of millions of dollars worth.
The fear is that the holding this massive amount of cryptocurrency in a central location could allow that holder to influence the market at their whim. Many argue that this years capitulation in price back to last year’s prices is evidence of institutional influence. They could be intentionally keeping prices relatively low in order to buy en masse once ETFs are approved.
Too Much Leverage a Concern
Further, as the ETF manager owns the bitcoin, it means they will subsequently own all coins which are created by any future fork in bitcoin which, in theory, could give them a lot of leverage in steeering the community towards which version is adopted going forwards (think BTC vs BCH). Think of it this way – all individuals who own Bitcoin (and therefore the private keys associated with those coins) effectively have voting rights. For instance, they decide which exchanges to use and therefore support what they do with any coins they get as a result of a fork.
On the other hand, this could be a great opportunity for the layperson with money to invest to get involved in bitcoin without ever having to worry about using an exchange or a wallet. And if someone, be it an institution or an individual, purchases that volume of bitcoin for whatever reason, then why shouldn’t they have the benefits that go with it?
ETFs could open the door to a swathe of new investors bringing mass adoption another step closer. They could also bring some legitimacy to bitcoin in the eyes of many skeptical, yet influential, persons in positions of economic and political power, furthering the appeal of Bitcoin.
There might also be a silver lining for the “Old G’s”, who are against ETFs for bitcoin, if the value of bitcoin subsequently goes up.
When are ETFs Going to be Available?
There is no set date for when they will be launched as there are simply too many moving parts to account for, but many in the industry believe it will be in the first quarter of 2019. With that in mind, some people do not expect the price of bitcoin to move significantly until ETFs go live. Even if ETFs are approved, and huge masses of bitcoin are bought up, it is unlikely that this purchasing will have a direct affect on the price of bitcoin itself. This is because such volumes are likely to be bought ‘OTC’ – or off exchange with private sellers.
The anticipation alone, however, is likely to cause some movement in the price, especially if the overall market sentiment is positive. This could be seen as a good opportunity to buy and hold Bitcoin to sell after the launch of ETFs on the subsequent price rise.
Will that happen? Only time will tell. Seven months is a long time in the crypto world, and there are likely to be many twists and turns in this one before anything is rubber stamped by the SEC. In the meantime, there are other options available to those who want in without having to worry about private keys and pass phrases. ETNs for bitcoin, which have been available to European investors for some years, are now available to US investors via their brokers, as reported by Bloomberg recently.
Interestingly, this does not appear to have had any effect on the price of bitcoin so far.
ETFs seem to be inevitable, and likely they will be accompanied by a wide fleet of other financial vehicles. Resisting them could be like fighting the tide.
What is almost certain is that there will be at least some influence on price. But for how long, and in what direction, remains to be seen. Ultimately, it may increase the divide between bitcoin users, private key holders and regular institutional investors (cue jokes about Johnny Come Lately’s not knowing their ear from their elbow but talking up how they’ve invested in Bitcoin).