A Guide to Cryptocurrency and Bitcoin ETFs

Will the cryptocurrency market see a huge shift in the near future?

2021 is a major year for the cryptocurrency market. Major coins like Bitcoin and Ethereum touched their peak and dipped down, new tokens caught up, and cryptocurrencies other than the Dogecoin rode the hype. Similar to cryptocurrencies, the U.S Securities and Exchange Commission is a noteworthy player in the market. In the past, the SEC has constantly blocked efforts to launch a Bitcoin exchange-traded fund. Its neighbor Canada has approved cryptocurrency EFTs but not the USA. Currently, the US only has the Grayscale Bitcoin Trust. While this is better than nothing, GBTC doesn't trade on major crypto exchanges, have poor liquidity, and sell at a discount. As opposed to this, a Bitcoin ETF will be a more investor-friendly option. 

The Time for Crypto ETFs

With the new presidential administration in the US, a new chairman has been appointed at the SEC, Gary Gensler, and citizens hope that the SEC changes its mind about ETFs. But like anything, this will be a gradual process. In a statement, the SEC said, "Among other things, investors should understand that Bitcoin, including gaining exposure through the bitcoin futures market, is a highly speculative investment. As such, investors should consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market."

According to crypto experts, SEC should approve ETFs. Matthew Le Merle, the managing partner of Blockchain Co-investors believes, "It's difficult for a regulator to approve an ETF if the underlying asset is a new or not that well-understood asset, but that is nonetheless their job, to make investable assets easily accessible to the broadest possible audience, and ETFs are one of the best solutions to that." 

What is Stopping the SEC?

Before approving an ETF, the SEC looks for a broad market with a substantial trading volume and pricing transparency, and crypto doesn't suffice these requirements. The SEC wants to ensure that there's no management or manipulation of prices in a possible ETF asset. At first, Bitcoin was only available on selected popular exchanges. But with enough liquidity and price discovery, Bitcoin can now become functionally equivalent to an asset like gold or copper for ETFs. 

Within the Bitcoin community, there have been some concerns regarding ETFs and how they could make the job difficult for independent cryptocurrency exchanges. So having crypto become ETFs could lead to many adverse conversations.