As the use of ETFs eases its way into the industry, whilst Bitcoin continues to break both headlines and expectations, the fear of missing out (FOMO) has once again struck the world of crypto.
2021 has been a very promising year for crypto, and for Bitcoin in particular. Bitcoin rang in the New Year with a price of just over $28,000 per coin. In the short space of time between January and April, the price had doubled to just over $60,000.
Although the price did take a bit of a tumble shortly after celebrating its April high, investors once again had something to celebrate when the price set records yet again with its $68,000 peak in November 2021.
With an undoubtable air of excitement surrounding Bitcoin, many who either currently hold it, or are interested in its abilities, fear missing out on the rising financial gains of the asset.
In addition to this, this fear is being exacerbated by a sequence of continued delays in the eventual introduction of exchange-traded funds (ETFs).
An ETF is a regulated financial instrument whose price tracks the value of underlying assets. An ETF can track the price of any valuable asset, such as gold or oil, not just Bitcoin, and is a favourable tool amongst those who wish not to deal in the physical asset itself
Following weeks and weeks of delays, VanEck’s Bitcoin ETF (XBTF) started trading on Chicago’s CBOE as of Tuesday. This followed the debut of ProShares‘ ETF (BITO) on the New York Stock Exchange in October; managing to amass $570 million in just its first day of trading.
However, on the other side of the pond, the UK’s Financial Conduct Authority (FCA) banned crypto EFTs as of January this year, so it’s unlikely we will see any moves in the UK any time soon.
The FCA has been nervous about the number of retail investors risking their money in the crypto sphere for some time. It’s now worried the volatile nature of the coins and tokens could blow up in the face of the financial sector with more institutions piling in.
UK Regulators appear to be holding fire right now as proposals to set up at central bank digital currency known as BritCoin are investigated and assessments made about the impact on the commercial banking system.
Fresh regulations are expected to limit banks and hedge funds exposure to crypto, which could be along the lines of the Basel Committee recommendations for financial institutions to be forced to set aside a buffer of up to 100% of the money invested in crypto assets to protect against future losses.
Giving crypto assets a high-risk price tag may help limit contagion if they sharply fall in value, but central banks and regulators are on a tricky tightrope. If new rules are too strict, they risk quashing innovation in the rapidly developing decentralised finance world.
If investors are feeling the FOMO effect, they should only dabble with cryptocurrencies at the edges of their portfolios with money they can afford to lose.
Also, the industry is welcoming predominantly US-domiciled ETFs, many European exchanges would not be able to facilitate their use. This is because US ETFs don’t produce the correct Key Information Document (KID) that is required for ETFs to be sold in the European market.
This became a requirement in 2018 with the introduction of PRIIPs (Packaged Retail Investment and Insurance Products) regulation, where prior to this the KID was not needed.