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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The United States Securities and Exchange Commission (SEC) is vehemently opposed to a common crowdfunding practice in the cryptocurrency industry called the initial coin offering (ICO). An ICO is similar to an initial public offering where a company or corporation raises investment capital by offering its stock to the public for the first time. Only in an ICO, a digital currency or token is distributed instead of a stock, and the token can have a variety of uses that blur the line of what defines a traditional security.

Still, the SEC believes that the way ICOs are funded has them falling under security laws, and the companies interested in launching an initial coin offering need to comply with SEC private placement rules and investor protection guidelines. Those that fail to comply, may be subject to cease and desist letters in the future, as has happened with a number of US-based ICOs.

To further warn potential investors of the dangers initial coin offerings, the SEC has published a website on the increasingly popular capital raising method, providing what the SEC calls the “three ‘Rs’ of ICOs: Risks Rewards and Responsibilities.”

The website reads:

“Companies and individuals are increasingly considering initial coin offerings (ICOs) as a way to raise capital or participate in investment opportunities. While these digital assets and the technology behind them may present a new and efficient means for carrying out financial transactions, they also bring increased risk of fraud and manipulation because the markets for these assets are less regulated than traditional capital markets.’

The list of potential risks, rewards, and responsibilities is directed both at investors and potential ICO issuers and cover off on how initial coin offerings could be securities, may need to be registered with the SEC, or may pose “substantial risks.” To avoid those risks, the SEC warns investors to do their own research, ask questions, to understand the product, and to take extreme caution if and when an investment sounds “too good to be true.”

The SEC also takes the opportunity to warn would-be ICO issuers, asking them to “use caution before promoting offers and selling coins.”

A month ago, the SEC launched a fake ICO website called HoweyCoins.com to provide a working example of what a fraudulent ICO may look like. Investors who clicked on any of the fake site’s ‘buy now’ buttons, were redirected to educational materials on what red flags to look out for when considering investing in an ICO.

[Image Credit: WikiMedia Commons]

In a bid to raise awareness of potential investment scams in the cryptocurrency space, the U.S. Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy have launched a fake website posing as a luxury travel firm kicking off the pre-sale portion of their initial coin offering (ICO).

The website HoweyCoins.com, is a tongue-in-cheek play on everything your run-of-the-mill bogus ICO offers. From ‘too-good-to-be-true’ promises, to flashy images of champagne bottles and palm trees, to convoluted and often-plagiarized whitepapers, to pre-sale bonus countdown clocks, the SEC’s spoof site has got all of the common enticements found on fraudulent sites.

In a press release titled “The SEC Has an Opportunity you Wont Want to Miss: Act Now!” SEC Chairman Jay Clayton explained the motivation behind HoweyCoins:

“The rapid growth of the ‘ICO’ market, and its widespread promotion as a new investment opportunity, has provided fertile ground for bad actors to take advantage of our Main Street investors,” with Clayton adding:

“We embrace new technologies, but we also want investors to see what fraud looks like, so we built this educational site with many of the classic warning signs of fraud. Distributed ledger technology can add efficiency to the capital raising process, but promoters and issuers need to make sure they follow the securities laws. I encourage investors to do their diligence and ask questions.”

Anyone who clicks on the “Buy Coins Now!” Button will be redirected to educational materials from the SEC warning users of potentials scams and what red flags to look out for. Some of the red flags outlined include celebrity endorsements, claims of guaranteed returns, claims of SEC-compliance, and more.

Even the site name HoweyCoins is an Easter egg referencing the “Howey test” – a test created by the Supreme Court stemming from the SEC v. W.J. Howey Co. case in 1946, aimed at determining whether a financial transaction qualifies as an “investment contract.”

Who knew the SEC was this funny? Still, fraudulent investments are no laughing matter, and the SEC has done a solid job at raising awareness of the potential pitfalls of cryptocurrency investing, all while serving as an entertaining break from the daily grind.

For educational information on how investors can protect themselves, visit investor.gov or use the Buy Coins Now button on HoweyCoins.com.

ethereum

US regulators are cracking down on non-compliant securities issuers, and senior officials are set to meet to discuss whether that group includes the founders of Ethereum.

According to the Wall Street Journal, senior officials from the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) will meet on May 7 to hammer out whether certain cryptocurrencies — an ensemble that anonymous sources say excludes bitcoin — should be classified as securities under US law.

However, that group does include ether, whose creators are not anonymous and which was initially sold through a presale in 2014. That presale raised $18.3 million in bitcoin from contributors, who received an initial distribution of ether tokens when the network’s Genesis block was mined the next year.

The officials will reportedly consider whether ether, whose circulating market cap is $68 billion, is sufficiently directed toward its stated use case — running Ethereum DApps — or if token holders buy it primarily for its perceived investment potential.

They will also discuss whether the project’s creators retain a level of influence over the asset’s price that is comparable to the influence that traditional company executives have over a firm’s share price.

On Wednesday, Ethereum co-founder Joseph Lubin hit back at the report, arguing during an interview with financial publication TheStreet that the project engaged in copious legal due diligence when structuring its token sale and that he is “extremely comfortable” that regulators will not classify it as a security.

However, former CFTC Chairman Gary Gensler said recently that he would classify ethereum and XRP — the third-largest cryptocurrency — as “noncompliant securities,” though he acknowledged that ethereum’s present level of decentralization may earn it a favorable regulatory ruling.

The ethereum price initially fell in response to the news that regulators are examining whether the asset is a security, though it made a moderate recovery on Wednesday and was trading at $687 at the time of writing.

Featured Image from Pixabay

bitcoin

The top securities regulator in the United States says that bitcoin is not a security under federal law.

Speaking on Thursday in a hearing before a House Appropriations subcommittee, Securities and Exchange Committee (SEC) Chairman Jay Clayton told lawmakers that cryptocurrencies which function exclusively as mediums of exchange are not securities, unlike initial coin offering (ICO) tokens, which are.

He said:

“It’s a complicated area. Because, as you said, there are different types of cryptoassets. Let me try and divide them into two areas. A pure medium of exchange, the one that’s most often cited, is Bitcoin. As a replacement for currency, that has been determined by most people to not be a security.”

“Then there are tokens, which are used to finance projects. I’ve been on the record saying there are very few, there’s none that I’ve seen, tokens that aren’t securities,” Clayton added. “To the extent something is a security, we should regulate it as a security, and our securities regulations are disclosure-based, and people should follow those and provide the information that we require.”

Clayton’s comments are consistent with statements that he has made in the past regarding the difference between “pure” cryptocurrencies like bitcoin and tokens, which the SEC says fall under US securities regulations.

Recently, a group of Silicon Valley heavyweights met with the SEC to attempt to convince them to provide safe harbor to most ICO tokens — as well as ethereum — but the agency is said to have not been overly receptive to the proposal.

That ethereum was on the agenda turned many heads, as it is the second-largest cryptocurrency and has been assumed by many ordinary users to be exempt from securities regulations.

However, as many newer users may not realize, the ethereum’s initial development was funded through a presale in 2014, though new units of ether have been distributed through mining since the network officially launched and will eventually be issued through a Proof-of-Stake (PoS) consensus algorithm.

For this reason, former markets regulator Gary Gensler argued earlier this week that ethereum is likely a “noncompliant security.”

However, Gensler — who chaired the Commodity Futures Trading Commission (SEC) during the Obama administration and now lectures on blockchain technology at MIT — said that ethereum was perhaps more likely than XRP to receive safe harbor from regulators, since ETH distribution has become decentralized over the previous three years while XRP issuance is controlled solely by a single entity: San Francisco-based company Ripple.

Featured Image from Pixabay