What is an ETF and Why Does Bitcoin Want One?

Photo: David McBee Pexels.com

ETF’s — Exchange Traded Funds

ETFs, exchange traded funds, are similar to mutual funds, in that they are diversified portfolios of stocks or bonds, but trade like stocks — at market price throughout the day whereas mutual fund sales are executed at the end of the trading day at the same price for all investors.

ETFs allows investors to invest in a broadly diversified portfolio without having to buy individual stocks or bonds, typically have higher daily liquidity and generally have lower operating costs than mutual funds.

Legitimacy. If the SEC approves a desired bitcoin ETF license it will bring waves of institutional investors to the bitcoin stage.

Crypto Markets Tumble as SEC Rejects Winklevoss Twins’ Second Bitcoin ETF Application

The SEC however, has yet to approve a Bitcoin ETF and recently rejected a second bid attempt by Cameron and Tyler Winklevoss, founders of the Gemini Exchange siting issues with security, market manipulation and investor protection issues, as reasons. In short, the SEC remains unconvinced that the cryptocurrency market is adequately free of abuse to bring trading to the general public.

One SEC Commissioner, Hester M. Peirce, published a dissent letter disagreeing with the Agency’s Bitcoin ETF rejection.

In it Hester M. Peirce wrote the following:

I respectfully dissent from the Commission’s order disapproving a proposed rule change, as amended, to list and trade shares of the Winklevoss Bitcoin Trust on Bats BZX Exchange, Inc. (“BZX”).[1] As the order notes, in reviewing such a proposed rule change, the Commission considers whether the proposed change is consistent with the Securities Exchange Act of 1934 (“Exchange Act”) and the rules and regulations thereunder.[2] Contrary to the Commission’s determination, I believe that the proposed rule change satisfies the statutory standard and that we should permit BZX to list and trade this bitcoin-based exchange-traded product (“ETP”). Accordingly, I would set aside the action the staff took by delegated authority in this matter and approve the proposed rule change.

In addition, I am concerned that the Commission’s approach undermines investor protection by precluding greater institutionalization of the bitcoin market. More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order. More generally, the Commission’s interpretation and application of the statutory standard sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin ETPs

You can read the complete dissent here — Dissent of Commissioner Hester M. Peirce to Release №34–83723; File No. SR-BatsBZX-2016–30

With one commissioner dissenting there may be a silver lining for Bitcoin ETFs in the future of which the SEC is still considering. One of which is the anticipated VanEck/SolidX application, which is viewed by many in the industry to have the best chance of approval.

The VanEck/SolidX fund will be physically-backed, meaning it will hold actual Bitcoin, and will be insured against loss or theft.

According to cryptocurrency research group, Ironwood, bitcoin could go over $35,000 with the development of a Bitcoin ETF.

Hopefully, that reality is not to far off.

Source: Pixabay.com

Audrey Nesbitt

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