Hopes were high about a probable bitcoin ETF launch this year, especially with Cboe Global Markets launching three bitcoin futures contracts on the Cboe Futures Exchange in December. But the U.S. Securities and Exchange Commission (SEC) poured cold water on all hopes.
Responding to two investment associations on Jan 18, a public letter written by Dalia Blass, director at SEC’s Division of Investment Management, stated that there are “significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors.”
According to Blass, the agency is skeptical about valuation, liquidity, custody, arbitrage and potential manipulation. According to the letter, “the SEC needs to evaluate how a cryptocurrency-related ETF can be fairly priced given the volatility of cryptocurrency prices, and amid technological changes such as blockchain forks.”
Plus, liquidity is another issue that needs to be scrutinized, “in particular, how such innovative products can be redeemed by retail investors on a daily basis”, per coindesk.com.
The SEC’s skepticism about bitcoin is not new. The Winklevoss Bitcoin ETF (COIN), which targets physical bitcoin, not futures, was being reviewed by the SEC on appeal. The tussle between the U.S. Securities Exchange Commission and Winklevoss over the launch has been going on for about three years. In fact, the issuer has restructured the proposal for the Bitcoin ETF multiple times.
Four issuers removed their product filings on the request of the U.S. Securities and Exchange Commission this month. Direxion Shares ETF Trust indicated that the SEC “expressed concerns regarding the liquidity and valuation of the underlying instruments” that its proposed funds would invest in.
Not only these proposed funds, the SEC has halted trading in shares of UBI Blockchain Internet, a Hong Kong-based company, pointing at possibly inaccurate information in its disclosures to the regulator and unfamiliar market activity in the stock since November.
Why Such Stringency?
Many analysts are issuing warnings about a bitcoin bubble. Bitcoin halved last week from its record peak of almost $20,000 a month ago. Ethereum and Ripple, the other sought-after crypto currencies, toppled on reports that South Korea and China could put an embargo on cryptocurrency trading, stirring concerns of a wider regulatory crackdown. Notably, South Korea makes up about 20% of global bitcoin trading (read: Bitcoin: ‘Red Tape’, ETF Filings & Withdrawal Explained).
Reserve Bank of Australia sees it as “speculative mania” and finds bitcoin more popular in the illegal economy, not among consumers. Governor of the Reserve Bank of New Zealand sees it a “classic case” of a bubble.
Citi analysts predicted that bitcoin decline to a range between $5,605 and $5,673 “looks very likely to be very speedy.” Some fear that cryptocurrencies may be used to escape taxes, launder money or finance terrorism. This shows how volatile the crypto currency is (read: Bitcoin Bubble Burst? ETFs in Focus).
Any Bitcoin Investing ETF Alternatives Around?
Two Blockchain ETFs were launched recently, Reality Shares Nasdaq NexGen Economy ETF (BLCN and Amplify Transformational Data Sharing ETF BLOK. Both funds look to track a portfolio of stocks from companies that are deemed to have strong exposure to blockchain technology development. But the issuers are not allowed to use the word “blockchain” in the name.
As per a source, “Blockchain, the renowned Bitcoin wallet provider, has partnered with SFOX to make it more convenient to buy and sell cryptocurrencies and digital assets.” So, if investors are not getting a bitcoin ETF now, they can definitely be in touch with the concept through blockchain ETFs.
The success of cryptocurrencies benefited semiconductor ETFs like iShares PHLX Semiconductor ETF SOXX and VanEck Vectors Semiconductor ETF SMH. This is because mining of cryptocurrencies needs the usage of semiconductors. A hardware known as an ASIC (Application-Specific Integrated Circuit) is designed explicitly for mining bitcoin.
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ISHARS-PHLX SEM (SOXX): ETF Research Reports
VANECK-SEMICON (SMH): ETF Research Reports