In October, cryptocurrency enthusiasts were thrilled by the SEC‘s decision, announcing that the first US Bitcoin futures exchange-traded fund could begin trading.
Crypto’s volatility has always been a big concern for the SEC as it argued that prices could be manipulated and liquidity might be insufficient, and that Bitcoin’s drastic price swings may be too much for individual investors. Evidence of this can be seen throughout the year in every cryptocurrency, but most notably in Bitcoin. Prior to the pandemic, Bitcoin was being traded for just over $7000. During March 2021 multiple cryptocurrencies, including Bitcoin, were hitting an all time high, before it crashed, in no small part to social media influence. Having recovered, the SEC was faced with Bitcoin ETF proposals once more.
Due to fear of price manipulation within the crypto space, the US regulator said it felt investors were safer when they invested in Bitcoin futures ETF over the regular Bitcoin ETFs, as it approved a Bitcoin-related exchange-traded fund.
Prior to the SEC’s announcement, Marcus Sotiriou, a Sales Trader at the UK based digital asset broker GlobalBlock, said. “A futures backed ETF is not backed by physical Bitcoin. However, it would still open the floodgates for institutional adoption and hopefully result in a spot backed ETF being approved in the not-so-distant future, which would allow ordinary people to include the asset easily in their brokerage account. An ETF approval could be the catalyst for a crypto market rally in Q4 which many analysts are predicting and aligns with what has happened in previous years.”
The Industry’s Response
Following the announcement the price of Bitcoin surged, touching $62,000 before slightly dropping off again. In the aftermath of the SEC’s announcement, the price of Bitcoin has once again broken its previous record, reaching an all-time high of $68,950 at the time of writing. Experts from across the industry responded to the SEC’s announcement:
Chris Harmse, Managing Director of BVNK said, “The SEC’s approval of the first ETF for bitcoin futures is yet one more milestone in the incorporation of cryptocurrencies into global financial systems. It opens up access to digital assets beyond wealthy investors for more mainstream participants who are looking for more traditional products that are regulated.
“There is a huge appetite out there among many audiences for regulated financial services rooted in the world of cryptocurrencies. For us, we’re focused on delivering these to fast-growth businesses and financial service providers.
“That said, all the attention on bitcoin and its price movements, as with the approved ETFs, can give a misleading picture of the sector. Cryptocurrencies are a technological breakthrough that makes it possible to structure financial services and transactions in new, more efficient ways. In recent years, a great deal of capital and many smart minds have been busy exploring the potential for innovation offered by the underlying platforms.”
In a similar vein, Tom Howard, Business Development and Growth at Powertrade said, “At this point, any ETF is welcomed in order to expand the accessibility of Bitcoin exposure in US markets as regulated funds and retail brokers may have restrictions that don’t allow them to trade Bitcoin spot or even futures. An NYSE listed ETF is a much needed instrument that enables compliant Bitcoin exposure to pension funds, mutual funds, retail brokers and more and I expect to see this appearing in more of the traditional brokerage accounts going forward. While the instrument is cash settled, market makers for the ETF or futures contracts will still need to hedge their exposure via spot markets, so it’s unlikely that it will reduce demand, it is more likely to unlock access to previously underserved demand. Outside of the US, this instrument is less useful as international jurisdictions embrace blockchain innovations and create new regulations specifically for this new financial technology.”
The delight of the announcement was further expressed by Sylvia Jablonski Kampaktsis‘, Co-Founder and CIO of Defiance ETFs, who comments: “The approval for the new crypto ETF is very exciting for investors, and for Wall Street. Having an ETF out there feels like a blessing or acknowledgement at least, that Bitcoin is here to stay and consumers are seeing various avenues of investment vehicle type in order to gain exposure.
“The crypto market is growing, which means that the prices of the underlying assets like bitcoin and Ethereum for example, will continue to grow. I think that this is a huge positive for the NFT market as well. Investors believe in the future value of blockchain technology, digital assets and non-fungible tokens. The bitcoin ETF is really interesting. It is actually the third way to invest in the space. Investors can buy Bitcoin directly and store it in a digital wallet. Bitcoin can be mined. It can be accessed through funds that invest in the physical asset via a trust, and now there is an ETF which gives investors access to bitcoin prices through the uses of futures. Each of these avenues are useful to the market, and to the various types of investors out there. Between the adoption of Bitcoin by countries as a main currency (El Salvador), the ability to exchange bitcoin for goods, services, digital art via NFTs, etc.. the ability to buy and sell funds or ETFs in nearly any trading account tells me that the appetite for crypto will continue. With that appetite, could come potentially HUGE price appreciation.
“I wouldn’t be surprised to see Ether around 100, Bitcoin at four to five times that in a couple of years. I was recently engaged in a conversation with a savvy investor who asked, when is the right time to get into Bitcoin? My thought would be, yesterday! However, it is not too late. I continue to see a compelling value proposition in holding bitcoin whether through BITO, GBTC, BITW, or buying BTC on Coinbase or even mining it yourself. Crypto, blockchain and NFT should be a 5-10% allocation in portfolios.”
However, not everyone was entirely thrilled with the announcement. Kevin Tai, Co-founder and Project Lead of Linear Finance, said, “The Bitcoin Futures ETF has potentially missed the mark of what retail and institutional investors are looking for when it comes to an ETF backed by Bitcoin. There is an expectation that these new ETFs will be efficient investment structures that are used to closely track the price of BTC. However, instead of being backed by actual BTC where it is traded 24/7, it is backed by BTC Futures from the CME Futures which brings cost inefficiencies. As contracts constantly roll over, extra trading costs and effort goes into managing the held contracts. So, whilst this is a step towards retail and institutional adoption, there is still a long way to go to getting a product that can truly be embraced by investors.”
The Future of Bitcoin
Following the announcement’s warm welcome, Bitcoin’s value saw a spike leading to the eventual record-breaking value today. Many attributed to this the Bitcoin futures ETF, as it was believed this would bring in money, pushing up demand for the cryptocurrency and thus the price.
Analysts at JPMorgan attributed the rally to rising inflation expectations and bitcoin’s appeal as a hedge against rising prices. Many believe crypto to be an independent currency and alternative to central banks’ fiat currencies. This is due to limits on bitcoin’s supply that are hard-coded into the underlying blockchain network’s programming.
The growing popularity has not gone unnoticed by regulators across the globe as, according to The Guardian, the Bank of England deputy governor, Sir Jon Cunliffe, said last month that digital currencies such as bitcoin could trigger a financial meltdown unless governments stepped forward with tough regulations.