“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:
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.
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:
- Small market size.
- Manipulation and fraud.
- 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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