Mania to mainstream: In a first, SEC might allow Bitcoin ETF trading

Highlights

  • Last month, SEC chair Garry Gensler hinted that Bitcoin Futures ETFs might receive a government nod under a 1940 law. 

  • Although many aspiring Bitcoin ETF issuers have lined up since, as many as four are under SEC consideration this month.

  • However, countries have different views on cryptos. While China has banned the trade, El-Salvador has welcomed it, and Russia has now expressed interest.

For the first time, the US Security and Exchange Commission (SEC) might allow Bitcoin Exchange Traded Funds (ETFs) to trade in the stock exchanges as a futures contract.

The ETFs give traders an alternative investment choice besides stocks, especially those who do not have time or with little money to chase individual shares.

The ETFs give traders an alternative investment option besides stocks, especially those who do not have time or have little money to pursue individual shares. 

In return, ETF issuers charge a nominal fee, while some provide their services for free. According to Bloomberg, the ETF industry is currently valued at US$6.7 trillion.

Crypto popularity has grown rapidly over the past few years.

So, while the crypto backers are upbeat over the SEC news, doubters might get some assurance boost if Bitcoin ETFs get an official sanction.

Background

In April this year, Bitcoin (BTC) prices surged to a record high of US$63,809. Its lowest price was US$29849.9, recorded in July. Bitcoin price jumped more than US$1000 after the SEC provided an investment advisory for bitcoin futures funds. 

In a recent tweet message, the SEC urged investors to exercise caution, stating that they should weigh the potential risks and benefits before investing in Bitcoin futures contracts.

However, many companies had applied for cryptocurrency ETFs before but were rejected by SEC. For example, Cameron and Tyler Winklevoss of Gemini Trust Co. had applied for a cryptocurrency ETF as early as 2013. Many other companies had also applied after that.

Also Read: Why is the stock of gene-editing titan CRISPR hogging attention?

But this time, it is different because the applications are filed under the Investment Company Act of 1940, which provides higher investors’ protection. Meanwhile, SEC head Garry Gensler had hinted last month that he would prefer funds that are CME-traded. CME is Chicago Mercantile Exchange, an organized exchange for trading futures and options.

Meanwhile, the SEC approval deadline for ProShares Bitcoin Strategy ETF is on Oct 18. So naturally, the market is eagerly waiting for the outcome.

Other pending approvals include Invesco Bitcoin Strategy ETF on Oct 19, VanEck Bitcoin Strategy ETF on Oct 25, and Valkyrie Bitcoin Strategy ETF (BTF) on Oct 25.

Also Read: Walgreens Boots (WBA) profits up 6.4% in Q4 as sales surge

(Bitcoin Futures Exchange Traded Fund is under consideration of SEC for approval.

Source – Pixabay

Also Read: Nine inflation-protected ETFs to consider amid skyrocketing prices

What to expect?

Market observers say the chance of getting approval is higher this time because Bitcoin ETFs applications were filed for futures contracts. Another difference is, the ETFs will come under the mutual fund rules, which the SEC chairman considers having "significant investor protections."

 In anticipation of a favorable decision, the crypto-linked stocks soared in recent days. However, SEC's primary concerns have been Bitcoin's price volatility and chances of manipulation.

Also Read: Wells Fargo (WFC), Morgan Stanley (MS) Q3 profits beat estimates

Earlier, Gensler hinted that ETFs based on CME-traded Bitcoin futures filed under the 1940 law might get a favorable verdict. But, soon after, the issuer companies had changed their product structure. 

According to Bloomberg, in another related development, Russian President Vladimir Putin has recently supported the cryptocurrency trade, stressing that they have the right to exist and be used as a means of payment. 

However, the Bank of Russia had earlier warned investors about volatility in the crypto market.

There have been concerns about money laundering and other criminal acts from the crypto trade. But, unlike China, there is no blanket ban on cryptocurrency in Russia. With the US considering a crypto policy, Russia might also develop its policy for digital currency.

Also Read: Nine penny stocks with over 100% year-to-date return to explore

Finally, as the crypto world evolves, companies are coming up with new products and technologies to attract customers. Besides, ETFs could be a relatively cost-effective investment instrument compared to individual stock trading for many investors. Hence, the governments might come up with policies to regulate the market sooner than later. However, investors must exercise due diligence before investing in the stock market.

Bitcoin (BTC) traded at US$59,877.92, up 4.36% gain at 10.37 am ET on Oct 15. Its maximum supply is 21,000,000, and the current circulating supply is 18,844,537.

Comment


Disclaimer