Could a Bitcoin ETF Push Prices Higher?

Written by Token Authority Research Team
Posted August 5, 2018 at 8:00PM

On July 26th, the digital currency market was dealt a blow when the Securities and Exchange Commission (SEC) rejected the Winklevoss twins’ latest Bitcoin ETF.

In the wake of the news, the price of Bitcoin, which was trending upward leading up to the decision, corrected by 4%.

For many investors, the SEC’s latest decision marks another grueling defeat in an ongoing digital currency ETF battle.

That said, there is hardly any reason to despair yet.

This isn't the first Bitcoin ETF to be rejected, and it likely won't be the last.

That being said, this ETF rejection shows a shifting attitude toward digital currency ETFs.

This time around, the SEC only rejected the ETF by a vote of 3–1, signaling a slow shift in attitude.

And with multiple crypto ETFs pending, the agency certainly has a lot to think about.

Today, we want to take some time to talk about how regulators’ attitudes toward digital currency ETFs have started to change and what a digital currency ETF could mean for the digital currency market.

But before we start that conversation, we need to take a step back and look at what an ETF is in relation to the digital currency market.

Only by understanding how a digital currency ETF would operate can you understand how it would change the world forever.

So What is a Digital Currency ETF?

Exchange-traded funds (ETFs) are one of the hottest modes of investment out there. Trillions of dollars in investment are being poured into ETFs every year.

And it's easy to see why.

Compared to high-fee hedge funds, ETFs offer investors a low-fee way to access a wide range of stocks or assets.

An ETF tracks a basket of assets and, in doing so, protects investors from volatility caused by a single stock.

But what would a digital currency ETF even look like?

In theory, a digital currency ETF would function much the same as an ETF that tracks stocks.

The ETF would own the actual digital currency, which would be divided into shares. That means investors could buy into the crypto market without touching a single digital asset.

And that is a huge deal. It could potentially bolster digital currency adoption and investment all over the globe.

While it's come a long way, digital currency adoption in America is still fairly low.

Only 8% of Americans report being invested in the digital currency market, which is a paltry sum when you compare it to the 62% invested in the stock market. 

It turns out the stock market, with its traditional investing channels, still feels more secure to people who are uncertain about the turbulent world of digital assets.

But a digital currency ETF could change all that by providing a whole new channel for digital currency investments.

How Could Crypto ETFs Bolster Market Participation?

The main reason crypto ETFs will increase market participation is simple: They would make the world of cryptocurrency so much easier.

Today, digital currency investors face quite a few problems.

For starters, the digital currency market is all over the place.

By that we mean if you want to own 20 digital assets, you're going to be chasing them on multiple different exchanges.

This requires a lot of administrative work and technical skills, and too many investors may not be worth it. That's also why so many investors only invest in Ethereum, Bitcoin, Bitcoin Cash, and Litecoin, all of which are available on fiat-to-cryptocurrency exchange Coinbase.

If there were a digital currency ETF, investors would have the ability to invest in multiple assets through one platform. Better yet, because an ETF has multiple assets, this could help provide a hedge against volatility. And then there's the security aspect.

As the digital currency market has evolved, the way we store and exchange digital currencies have evolved as well.

Today's digital currency traders rely on a mixture of hardware wallets and software wallets to store their digital assets.

And that leaves room for security flaws. Investors can lose the pass codes needed to operate hardware wallets. Or they can be robbed on less secure software wallets.

With an ETF, these kinds of security flaws would be a problem of the past. 

With an ETF, there would be a second layer of protection because of the custodian bank that supports the ETF.

And for many serious crypto investors, this kind of security means sleeping more soundly at night.

With these kinds of benefits, ETFs could lure investors unwilling to take the plunge out of the woodwork. This means more money flowing into the market.

But when will the first digital currency ETF finally arrive?

The truth is that regulators are still somewhat daunted by the digital currency market, which is plagued with volatility.

But that doesn't mean it will never happen.

There are hundreds of individuals rooting for the first cryptocurrency ETF, some of them even in the SEC.

In fact, with each ETF effort, the attitude of regulators has slightly changed.

The History of Attempted Digital Currency ETFs and the Future

For starters, it’s important to point out this isn’t the world’s first swing at a digital currency ETF.

It isn’t even the second or the third.

Multiple companies and parties having been taking stabs at having the first Bitcoin ETF for over a year.

And in reality, the only reason this latest rejection garnered so much attention was the people behind: the Winklevoss twins.

Ever charismatic and now world famous, the Winklevoss twins have been trying to launch a Bitcoin ETF for years. They saw their first ETF rejected last year, long before Bitcoin hit $2,000 for the first time.

And it was a daunting blow.

But that didn’t stop them. Since the rejection of the first ETF, the Winklevoss twins have sunk their teeth even deeper into crypto. They’ve doubled down by working hard on their digital currency exchange, Gemini. It was through Gemini that this latest Bitcoin ETF would have operated.

All that effort considered, it would seem like the second ETF would be easy. But it was not.

But one big thing did change: the SEC’s reaction to it.

In this latest ETF rejection, the ETF was rejected by a vote of 3–1. That is a huge milestone, demonstrating that attitudes in the SEC are starting to shift.

The one SEC commissioner who voted for the ETF, Hester Peirce, had this to say:

I think we have an important role to play telling the United States and the world that our capital markets are open to innovation. And that’s what sort of drove my dissent last week and what really drove me to come back to the agency as a commissioner.

It would seem that members of the Securities and Exchange Commission do realize that their restriction of a digital currency ETF puts them behind the innovation curb.

They just want the promise of some kind of stability before they give the first digital currency ETF their blessing.

All that said, with multiple ETFs still pending in the wing, it is uncertain what investors will see in just the next couple of months.

For now, investors should be keeping a close eye on the digital currency ETF situation.

Not only could an ETF signal a massive price surge for the crypto market, but it would also provide cryptocurrency investors with a brand-new way to invest in this rapidly growing technology.

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