Bitcoin is about to explode,” according to a tweet by CNBC cryptocurrency analyst and host Ran Neuner. He points to the upcoming bitcoin ETF decisions which he thinks will act as a catalyst for a new bull run. But how accurate is this prediction?

“I just bought Bitcoin for my parents. It’s too obvious that it’s about to explode…” That was the tweet from CNBC’s Ran Neuner this week.

Expanding on the statement, he said that bitcoin exchange-traded funds (ETF) will trigger the upcoming price rise:

Ran Neuner tweet bitcoin will explode

So what exactly does this mean?

Bitcoin “Futures” Triggered the 2017 Price Explosion

As Neuner writes, last year’s bitcoin price explosion was triggered by the launch of a bitcoin futures market.

The futures market allows traders to bet on the future price of bitcoin (without actually buying bitcoin itself). It was a new way of funneling big investors towards the crypto market.

And it worked. The speculation (and subsequent launch) of bitcoin futures sent bitcoin to an all-time high of $20,000.

“An ETF Is a Way Bigger Deal” Than Bitcoin Futures

Ran Neuner is absolutely correct about that.

Like the futures market, an ETF is a simple way for investors to put money into bitcoin, without buying the cryptocurrency itself.

ETFs track the price of an underlying asset, in this case, bitcoin. They trade on a public stock exchange, making it easy to buy and sell.

Crucially, ETFs are cheaper and more accessible than futures contracts. They are a phenomenally popular investment tool, making up a huge portion of institutional portfolios.

what's an ETF infographic
Credit: Stocks to Trade

The financial world has increasingly shifted towards ETFs instead of futures across the board. Pictet’s investment manager, Shaniel Ramjee explains:

“[Our] ETF usage has gone up, mostly because the cost has come down and the variety of ETFs has increased.”

ETFs are among the most widely used investment tool on the planet.

So a bitcoin ETF would allow mainstream investors and institutions to add bitcoin to their portfolios with less risk and hassle.

There’s a strong argument that “big money” would flow into bitcoin should an ETF become commercially available.

Do Bitcoin ETFs “Require Actual Purchase of BTC”?

Neuner’s second point is that bitcoin ETFs require the actual purchase of BTC, whereas futures do not.

The implication being that an ETF will directly push money into the cryptocurrency market rather than simply track its movements.

This is half-true.

Only some bitcoin ETF proposals are based on physical bitcoin. The recently rejected Van Eck ETF, for example, was a physical bitcoin product. It means Van Eck would physically buy bitcoin before pooling it to create an ETF.

Other proposals were “futures-backed.” In other words, the banks would not buy bitcoin itself. Instead, they would buy futures contracts to back the ETF.

It’s true that a physical bitcoin ETF is more likely to gain approval than a futures-based product. The Securities and Exchange Commission (SEC) has hinted that the futures market is not large or mature enough to support an ETF.

However, if and when a bitcoin ETF is approved, it remains to be seen whether it will involve the physical purchase of bitcoin.

Bitcoin ETF Deadlines Loom

The SEC has set a new deadline of October 26th for comments on nine ETFs. These ETFs were each rejected back in September. However, the SEC has changed the rules, allowing for public comments of support or opposition.

It suggests the SEC is taking these proposals seriously. But don’t take it as a hint that an ETF approval is pending.

Regulation Stands in the Way

Unfortunately, the US Securities and Exchange Commission (SEC) keeps rejecting ETF proposals.

It’s important to note that the rejections have nothing to do with bitcoin itself. instead, the SEC has an issue with:

  1. Small market size.
  2. Manipulation and fraud.
  3. High volume outside the US.

ETF Approval More Likely in 2019

Since very little has changed since the September rejections, don’t expect a miracle. The SEC is unlikely to reverse the decision in the near future.

Most in the industry expect an ETF approval in 2019 at the earliest. Ran Neuner predicts “before end Feb.”

Promising developments like Gemini’s new insurance and custodial services may take us one step closer, but this is a long game.

Will ETF Approval Trigger a Price Explosion (or Collapse)?

ETFs are coming. It may be weeks, months, or years away, but the stepping stones are in place. The approval will likely attract a new wave of “big money” to the cryptocurrency market.

However, let’s not forget what happened after bitcoin futures were finally introduced.

The market crashed.

That’s partly because bitcoin futures contracts also allowed traders to bet against bitcoin.

ETFs will allow a similar function. Traders will be able to “short” bitcoin ETFs, potentially sending the price down again.

One thing’s for sure. A bitcoin ETF will funnel enormous sums of money into the cryptocurrency market. It may trigger the next bull run, but it will also increase selling pressure.

Something to bear in mind as we edge closer to SEC approval and institutional involvement.

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ethereum logo on a dark blue background
  • Ethereum futures contracts are expected to launch in the near future via Cboe Global Markets.
  • ‘Futures’ provide an easy way for investors to ‘bet’ on the price of Ethereum.
  • Bitcoin futures (launched in 2017) sent the market to an all-time high, before triggering a 60% reversal.

In December 2017, the price of bitcoin hit a record $20,000. One trigger for this price rise was the launch of a bitcoin ‘futures’ market, introduced by Cboe Global Markets. Cboe is now expected to announce an ethereum futures equivalent.

But what exactly is a futures contract? How will it affect Ethereum and the wider crypto market?

Ethereum futures contract: what is it?

A futures contract allows investors to ‘bet’ on the future price of something.

It’s an easy way to speculate on price rises (and falls) without having to buy the asset itself, in this case, ethereum.

It works like this: you agree to purchase ethereum for a pre-determined price, on a specific date in the future. That price may be higher or lower than today’s value, depending on whether you think ethereum will move up or down.

A real-life example

Let’s say you think ethereum will go up in value. You agree to buy at $290 (today’s price), but you won’t pay until the contract expires in two month’s time.

If ethereum has increased in value when the futures contract expires, you have successfully bought in at a much lower market price.

Most speculative investors close the trade before the contract expires to lock in the profit (or cut their losses) without having to buy the asset itself.

Betting against crypto

Futures trading also allows you to bet against the market.

This is what we saw in January 2018, when the bitcoin price came tumbling down, shortly after hitting a record high. Investors now had a way to ‘short’ the bitcoin market, and they pounced.

bitcoin price chart after futures launched in December 2017
Chart: Coinmarketcap

What will happen to ethereum?

We may see a similar pattern if the ethereum futures market is launched. Investors will have the opportunity to flood into the market with relative ease. However, they may also bet against ethereum, sending the price down.

Good news for bitcoin?

Tom Lee, who recently reaffirmed his bitcoin price target of $20,000+, thinks the move could be good for bitcoin:

“Since December of this year, if one was bearish on any aspect of crypto but did not want to own the underlying, they could short bitcoin. They can now short ether, means the net short on bitcoin in futures would fall.”

In other words, if investors want to bet against the crypto market right now, shorting bitcoin is their only option. If ethereum futures are launched, however, they will also be able to short ethereum, which could take some of the pressure off bitcoin.

More details about the ethereum futures market

Cboe Global Markets, which owns the Chicago Board Options Exchange, was the first exchange to offer bitcoin futures. It harnesses the Winklevoss Twins’ Gemini market to track the underlying price of bitcoin.

The ethereum futures contracts are expected to use the same underlying Gemini market. They will be ‘cash-settled,’ which means they won’t trade ethereum itself. Rather, they will simply track the price and all positions will be closed before the futures contract expires.

We’re still waiting for a green light from the Securities and Exchange Commission (SEC). However, there is a precedent since the bitcoin futures market already exists.

Although the SEC is dragging its heels on an exchange-traded fund (ETF), it is much more likely to pass the ethereum futures market proposal.

bill gates

Bill Gates said that he would short bitcoin if he could. Tyler Winklevoss is calling his bluff.

Speaking with CNBC, the Microsoft co-founder and prolific philanthropist said that he wished there was an easy way to short bitcoin so that he could take advantage of the opportunity.

“As an asset class, you’re not producing anything and so you shouldn’t expect it to go up. It’s kind of a pure ‘greater fool theory’ type of investment,” he said. “I agree I would short if there was an easy way to do it.”

That has been a common refrain from bitcoin bears for quite some time, but there’s just one problem — it no longer passes muster.

Bitcoin futures products have existed on cryptocurrency exchanges such as BitMEX and OKEx for years, but skeptics could believably feign hesitation to use these “unregulated” trading platforms.

However, in December, two regulated US exchanges — CBOE and CME — launched conventional bitcoin futures products, enabling bulls and bears alike to stake out their bitcoin positions in a secure marketplace.

That’s why Tyler Winklevoss put Gates on notice that he needs to put his money where is mouth is.

Winklevoss — who along with his brother Cameron co-founded cryptocurrency exchange Gemini — challenged Gates to make good on his alleged desire by opening a bitcoin short position on Chicago exchange CBOE.

“Dear @BillGates there is an easy way to short bitcoin,” he wrote on Twitter. “You can short #XBT, the @CBOE Bitcoin (USD) Futures contract, and put your money where your mouth is!”

Those futures, incidentally, are based on pricing data supplied by Gemini’s daily two-sided auctions.

And while these products may be too pricey for the average retail investor, Gates is not likely to have much trouble cobbling together the funds necessary to trade CBOE’s 1 BTC contracts.

His tweet also tagged Berkshire Hathaway Warren Buffett, who — along with Gates, who sits on the company’s board of directors — was in Omaha, Nebraska for the firm’s annual shareholders meeting.

Buffett, a longtime cryptocurrency bear, took time during the meeting to bash bitcoin as “rat poison squared,” a sentiment his vice chairman Charlie Munger later expounded upon in vivid language.

Featured Image from Wikimedia Commons

Bitcoin Futures

U.K.-based cryptocurrency exchange Coinfloor has announced that it will be launching a physically settled bitcoin futures next month, making it a first.

Speaking at the Futures Industry Association’s annual conference in Boca Raton, Florida, Mark Lamb, co-founder of Coinfloor, said to Reuters that:

When you talk to the liquidity providers, they all say the same thing, which is they want a physically delivered futures contract so they can hedge their exposure across exchanges.

In December, Chicago-based registered exchange CME Group Inc and Cboe Global Markets Inc started offering exposure to cryptocurrencies such as bitcoin. Bitmex, CryptoFacilities also offer bitcoin futures, whereas Wall Street investment firm Cantor Fitzgerald self-certified a new contract for binary options tied to bitcoin, as announced by the U.S. Commodities Futures Trading Commission (CFTC). This makes Coinfloor, at least, the sixth company to list a product offering exposure to digital currencies.

However, unlike the aforementioned organisations, which deliver cash settled contracts, Coinfloor will be providing physically settled contracts. This means that when the contract expires, the asset that is being traded – bitcoin – will be delivered.

According to Lamb, there has been cause for concern among investors and large proprietary trading firms regarding cash settlements, with many believing that they can easily be manipulated. He is of the opinion that individuals may try to move the price of the indexes or auctions on spot exchanges that set futures prices in their favour.

After the first day of trading for the Cboe exchange in December, the platform saw the price of bitcoin jump in value by $1,000, pushing the price of one coin to above $17,000.

However, the idea of bitcoin futures is still looked at with some concern. In response, in January, J. Christopher Giancarlo, the chair of the CFTC, announced that the regulator would be developing a ‘heightened review‘ process for how cryptocurrency derivatives, such as bitcoin futures, come to the market.

The regulator has also come under fire in the past from the Futures Industry Association (FIA) for allegedly not consulting with the organisation regarding the CME and Cboe product launches. According to the FIA, the agency rushed through the process by permitting the exchanges to ‘self-certify‘ their bitcoin futures contracts.

Featured image from Shutterstock.

sec

The US Securities and Exchange Commission (SEC) has thrown cold water on exchange-traded fund (ETF) providers jockeying to list the first bitcoin ETF.

Thought to be a game-changer for cryptocurrency adoption, bitcoin ETFs would provide investors with the ability to obtain exposure to the flagship cryptocurrency through a conventionally-wrapped investment product.

Fund providers have sought SEC approval for cryptocurrency-derived ETFs for years, but the SEC has been reluctant to lend its approval to these products, which would likely be popular among retail investors.

The rush to list a bitcoin ETF intensified following the launch of the first bitcoin futures contracts, as the general consensus among analysts was that the SEC would quickly approve a fund that invested exclusively in futures contracts, which currently trade on two regulated US exchanges.

However, several recent developments indicate that this may not be the case.

Most recently, the SEC sent two investment industry trade groups a lengthy letter outlining a number of “significant investor protection issues” that fund sponsors must answer before the agency will consider approving a bitcoin ETF.

“We believe…that there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors,” Dalia Blass, director of investment management at the SEC, wrote in the letter, which was dated Jan. 18.

Blass said that the SEC was chiefly concerned about the liquidity of the futures markets, as well as how to assign a fair market value to what would be intensely-volatile products. However, she also touched on a variety of other topics, including market manipulation, custodial issues, and arbitrage.

“[T]he innovative nature of cryptocurrencies and related products, as well as their expected use and utility in our financial markets, means that they are, in many ways, unlike the types of investments that registered funds currently hold in substantial amounts. In light of these considerations, we have, at this time, significant outstanding questions concerning how funds holding substantial amounts of cryptocurrencies and related products would satisfy” federal securities laws, Blass said.

Earlier this month, the SEC reportedly asked fund providers to voluntarily withdraw their bitcoin ETF applications, citing some of the concerns outlined in the letter above.

Notably, the agency also pressured the first blockchain-focused funds to remove the word “blockchain” from their names, although these ETFs — which primarily invest in companies experimenting with blockchain technology — were allowed to begin trading this week after complying with this request.

Featured Image from SEC/Flickr