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by George on March 15th, 2019

The SEC might approve the first Bitcoin ETF in a few days. What are the advantages of crypto ETFs?

Bitcoin and cryptocurrency, in general, are controversial all over the world. Ever since being released in 2009 and hitting mainstream several years later, Bitcoin has been trying to make it big from a legislative standpoint as well. For a long time, the cryptocurrency has been met with skepticism or just outright hostility from government regulatory bodies in different countries. A lot of countries rolled out some tough legislation over the last few years. The 2017 crypto explosion had a lot of countries shuffle around in a disorganized manner. Governments were experiencing significant pressure from their constituents. The situation was further exacerbated by the fact that cryptocurrency had become a worldwide phenomenon and showed no signs of stopping.

The market crash of 2018

Securities and exchange commision might approve bitcoin ETFsThe fever slowed down significantly by the time 2018 rolled around. Cryptocurrencies entered a bear market. Bitcoin lost most of the price it racked up over the previous year. This produced two effects. On one hand, a lot of people lost their livelihood and had their investment portfolios slashed. On the other hand, people became a lot more cautious about the industry. They stopped treating it like a golden ticket to riches.

The slowdown in the crypto frenzy allowed the governments around the world to take a step back as well. This gave them the industry the luxury to consider and plan out the path it would take going forward. It also gave the governments the luxury of not having to rush with legislation anymore. This is an important factor if we’re ever going to see Bitcoin enter the world of legitimate business and tech-innovation.

If blockchain is to be truly integrated into our society, we must realize that compromises have to be made. Governments need to combat potential black market and money laundering opportunities that blockchain carries. Of course, the only way the crypto community will embrace these legislations is if they manage to keep the core values of cryptocurrency and blockchain intact to a sane degree. The only way we can do this in a mutually beneficial way is through dialogue. And the slowdown offered time for this dialogue to occur.

Exchange Traded Funds: The next step in crypto evolution?

For quite a while, the market of cryptocurrency trading has been focused on mutual funds. They offered great liquidity and flexibility, had a wide array of diversification opportunities, and reasonable, manageable prices. Supposedly, the ETFs are going to improve the situation even more. Most professional cryptocurrency brokers hold the opinion that ETFs are a step above. They believe that the advantages of ETFs trump the potential downsides they might possess. Due to this shift in public perception, the Exchange Traded Funds are becoming increasingly popular.

So what are ETFs anyway?

To put it in layman’s terms, an Exchange Traded Fund is a bunch of securities you’re allowed to trade with on an exchange. The trading is usually conducted through a broker. The Exchange Traded Funds are available to a wide range of investors. They can be traded by investors that trade with a number of assets. These can be stock shares, bonds or commodities – it doesn’t matter. It’s a multifunctional tool with a wide set of possibilities. ETFs, possess the characteristics of both mutual funds and regular stock shares. Bitcoin ETFs, in particular, are offering traders a greatly diversified, interesting portfolio for an improved price. The transparency level is up as well. All one needs to is select a reliable crypto exchange and get trading.

What are the advantages over mutual funds?

However, let’s expand on the issue a little bit. Below, we’ll offer some of the advantages that the Exchange Traded Funds hold over mutual funds and how these differences can play out in trading:

  • The ETFs offer traders better control of their capital gains taxes. If utilized correctly, they will allow you to be much more efficient with your taxes;
  • This level of control extends to trading as well. Exchange Traded Funds can be traded throughout the workday. This is a significant improvement compared to mutual funds. As you probably know, mutual funds trading can only be conducted once every day. The trading is one at whatever Net Asset Value (NAV) price they happen to close at. This greatly limits flexibility and profit-making opportunities for investors in this emerging industry. In contrast, the ETFs provide them with nice purchasing and selling control, as well as the ability to utilize stop-loss orders on the trades they open. And as everyone in this business knows by now, stop-loss can be a lifesaver in certain situations;
  • ETFs also have no minimum purchasing requirements. You won’t be forced to buy a predetermined number of shares with Exchange Traded Funds. You can start trading even with a single share if you want to. Once again, the control is in your hands;
  • And last but definitely not least, the ETFs do not require any sales fees from you, with the exception of the commissions your broker might charge you. This too is quite a significant improvement over the usual way of doing things.

The complicated relationship of regulators and crypto ETFs

The battle to get a legitimate Bitcoin ETF out there has been going on for years by now. The Securities and Exchange Commission of the United States has a rich history of trying to shut that battle down. The SEC has turned away every single attempt to have a Bitcoin ETF approved since 2014. Their reasoning has also varied. It almost turned into a game with no end at some point.

Most recently in 2018, VanEck  SolidX Bitcoin Trust, an alliance between an investment company and a financial services provider, made an attempt to pass a CBOE Bitcoin ETF proposal through the SEC. The commission predictably delayed the decision. Before that, Direxion had five proposals get rejected. Two of GraniteShares ETFs got turned down as well. The SEC rationalized the decisions by stating that the companies in question could not implement the projects, as they didn’t possess the necessary capacities for it.

The famous and sometimes infamous twins Cameron and Tyler Winklevoss also made moves on the SEC. The alleged Facebook idea creators and founders of the Gemini exchange platform tried to get ETFs approved twice with no success. To add insult to injury, SEC, in fact, restricted the businessmen from even trying anymore.

ETF wars: A new hope

Bitcoin Exchange Traded Funds in 2019

Not everything is looking grim, however. The legal battle of the industry with the exchange commission might be coming to an end. The SEC recently announced that they’re making some real progress in regards to Bitcoin ETF matters. One month ago, on the 15th of February, the commission even publicized an ETF approval request by  Bitwise Asset Management and NYSE Arca. The publication has a time stamp. In 45 days since the publication, the request that was put forward in the Federal Register has to receive an answer. The answer could be positive, negative or it could be a decision to delay the final verdict. Regardless, it must come.

Conclusion and prognosis

The deadline for the decision will arrive in just a couple of weeks. Therefore, the crypto community is understandably excited. The process is not an easy one. The proposal has to go through a ton of legal and political hurdles and overcome them. Only then will it be presented by the SEC in its final form. It’s an interesting journey that has the entire community on the tips of their feet.

Regardless of the hardships, the head of ETFs for Bitwise, John Hyland seems quite relaxed about the whole thing. The mood seems to be that this time, a positive answer could very well be in works. The proposal is a solid one. Bitwise and NYSE Arca tried to address the problems that factored in previous denials and the potential hardships their own proposal might face. All in all, the company, along with most of the community seem hopeful about 2019 and what it might bring for the ETF game. If ETFs are finally approved this year, it will set a precedent that could launch cryptocurrencies into a new level of development and prospects.

By George

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