For years now, people have been hoping for Bitcoin Exchange-traded funds. The Securities and Exchange Commission (SEC) has however been hesitant to allow an ETF based on this largely untested coin. Another proposal for Bitcoin ETF was recently rejected, increasing the number of the already rejected proposals since the year 2014.
Despite their constant rejection, the number of Bitcoin applications has still multiplied in the recent past. This is thanks to the increase in the number of crypto investors daily. So let’s explore what these Exchange-traded funds are, why the SEC is hesitant to approve them and whether we should even expect them to be approved.
How would a bitcoin ETF work?
First of all, ETFs are Exchange Traded Funds and they are used to track coin activities. The possibility of an ETF that tracks Bitcoin is incredible. Unfortunately, the efforts to launch a Bitcoin ETF have been deterred a countless number of times.
Think of an ETF as an investment motor vehicle that follows up the performance of an asset. An ETF enables investors to expand their investments without actually owning the assets tracked by the ETF. An ETF provides a simpler alternative to buying and selling assets and is the best available option for those individuals that are only interested in losses and gains.
A bitcoin ETF works similarly to the traditional ETFs. They mimic the price of the most popular digital currency in the crypto-sphere. This allows the investor to purchase into the ETF without having to trade the coin himself. On top of that, since the ETF holders won’t have to invest in the coin directly, they won’t have to be concerned with the technicalities of stowage or safety measures.
Why Not Just Invest in Bitcoin?
You are probably wondering why wouldn’t someone just invest in Bitcoin directly rather than invest in an ETF which essentially mirrors the price of that cryptocurrency. There are several reasons for this, they include
- The investors will not be bothered by the security procedures linked with holding Bitcoins and other cryptocurrencies.
- There won’t be a need to deal with cryptocurrency exchanges in the process. The investors will only need to buy and sell the Exchange-traded fundsthrough traditional exchanges and markets.
- Another crucial advantage is that investors will be able to short sell shares of the ETF if they believe that the Bitcoin prices are about to go down. This cannot happen in the crypto-sphere.
- The most important benefit of all is perhaps the fact that ETFs are much easier to understand compared to the cryptocurrencies. There have been many cases of people investing in coins or tokens without the knowledge required. For an investor looking to invest but not interested to learn the ins and outs of the trade, this is the best option.
Why the SEC is hesitant
Many believe that a Bitcoin ETF is the catalyst for the next major bull run, therefore there is a lot of attention and speculation surrounding the SEC’s recent rejection of yet another proposal. With the constant rejection, billions of money have been wiped off. Some analysists recognized the following as the possible reasons for the rejection.
1. Fraud and Market Manipulation
The SEC claims that fraud and manipulation are a very common tale in the crypto-sphere and therefore base their rejection upon this reason. The agency claims that the applications lack the ability or promise to curb the manipulative and fraudulent practices which are very common. The SEC has used this as a reason to reject another application before.
The SEC also claimed that another problem was the fact that more than 75% of the Bitcoin trade was from non-American exchanges.
Security of digital assets and investors protection is also a major concern.
2. Market Surveillance a Concern
In two of the most recent denials, the SEC released notices indicating that the ETFs involved lacked enough market surveillance agreements. According to the SEC, an exchange must have surveillance sharing agreements with an impressive market for trading the underlying commodity.
What is the fate of ETFs?
There is a good reason to believe that despite the current rejection, Exchange-traded funds are investable. Even the SEC itself confirmed that they will approve these coins eventually. All the ETF proposals to SEC have either been rejected or postponed, however, this is not enough to discourage the investors who keep submitting these proposals.
Most people hoped that the beginning of 2019 would finally be the time when an ETF proposal would be approved, unfortunately, this did not happen. However, there is still hope that soon an ETF will be approved.
Experts predict that in less than a year from now, the first ETF will be approved. This belief has been fueled by the general lack of drama surrounding Bitcoin across the globe
It may not be very soon but Bitcoin ETFs are going to be approved.
