Why is 2018 Unlikely?
Last week, the US Securities and Exchange Commission (SEC) officially rejected the Bitcoin ETF proposal of the Winklevoss twins, who operate Gemini, a major cryptocurrency exchange in the US.
In its 92-page report, the SEC emphasized that the involvement of Gemini, a strictly regulated cryptocurrency trading platform, can leave the ETF vulnerable to price manipulation. Gemini went as far as to hire Nasdaq, the second-biggest stock market in the world, to utilize its technologies in monitoring transactions and user activity. Still, the SEC clearly expressed skepticism towards an ETF that relies on a single cryptocurrency exchange.
Upon the rejection of the Winklevoss Bitcoin ETF, the SEC also emphasized that its concerns regarding market manipulation are exclusive to the Winklevoss Bitcoin ETF, and not reflective of other proposals filed by VanEck-SolidX and the Chicago Board Options Exchange (Cboe).
The vast majority of investors in the cryptocurrency market have started to anticipate the approval date of VanEck-SolidX and Cboe Bitcoin ETFs subsequent to the rejection of the Winklevoss Bitcoin ETF, due to the background of the two financial institutions in the traditional finance sector.
Both VanEck and Cboe have been in investment management firm for over four decades and VanEck has been operating hundreds of ETFs in US markets since the 1990s.
In an interview with CryptoSlate, former banker and major FX market maker trading analyst Alex Krüger said that the ETF filing of Cboe is vastly superior to prior ETF proposals, and given the institution’s history, the probability of Cboe Bitcoin ETFs approval is substantially higher than other ETFs.
However, Krüger stated that while the filings of Cboe and VanEck have high chances of SEC approval, US financial authorities do not have a convincing reason to approve the first ETF backed by digital assets in the country’s history well before the final deadline, on February 27, 2019. He explained:
“The CBOE proposal is vastly superior to prior ETF proposals, and addresses most of the concerns the SEC has expressed when rejecting prior ETF applications. Yet the SEC’s key concern remains: underlying bitcoin markets are unregulated. However, one of the SEC commissioners has already expressed support towards a bitcoin ETF. My assessment is that it is feasible the SEC will decide the CBOE ETF proposal does satisfy requirements — even if it doesn’t. It should be a long process. I do not expect the SEC to reach a decision before the final deadline, which is February 27, 2019.”
What Impact Can the Bitcoin ETF Have on the Cryptocurrency Market?
Currently, in some markets, there are a few public trading instruments such as the Bitcoin Investment Trust (GBTC) of GrayScale Investments which accredited investors can utilize to invest in Bitcoin.
But, these instruments are not equipped with insurance, comprehensive internal management systems, and security measures, unlike ETFs that are required to meet the strict guidelines outlined by the SEC.
Krüger emphasized that a Bitcoin ETF could be crucial in legitimizing the cryptocurrency sector and digital assets as an emerging asset class. Krüger added:
“A bitcoin ETF would further legitimize bitcoin and would allow several asset managers to participate in the asset class.”
Considering the high anticipation regarding the approval of a Bitcoin ETF, the first digital asset-backed ETF will likely have a major impact on the liquidity of cryptocurrencies, particularly in the public stock market and the traditional finance sector.