The Bitcoin price dropped sharply on Wednesday after the U.S. Securities and Exchange Commission (SEC) postponed its verdict on the proposed Bitcoin exchange-traded fund (ETF). The value of Bitcoin is expected to skyrocket once the Bitcoin ETF is approved.
What’s the issue with the Bitcoin ETF?
Investment firm VanEck and financial service provider SolidX are working together to launch a Bitcoin ETF. Such an ETF would be backed by actual Bitcoins rather than futures. An ETF would also make it easier for institutional investors to get into cryptocurrency investing, as it is much safer than buying Bitcoin directly. This is VanEck’s third attempt to get approval for the ETF.
If approved, the Bitcoin ETF would be a first-of-its-kind financial product, and the crypto community is eagerly waiting for the product. The first gold-backed ETF, which debuted in 2003, played a major role in pushing up gold prices, and the same is expected of the Bitcoin ETF as well. Such a product would also give some stability to the otherwise volatile market.
David Einhorn Buys Three New Stocks: These Are The Names And Theses (Q3 Letter)
David Einhorn's Greenlight Capital funds returned 5.9% in the third quarter of 2020, compared to a gain of 8.9% for the S&P 500 in the same period. This year has been particularly challenging for value investors. Growth stocks have surged as value has struggled. For Greenlight, one of Wall Street's most established value-focused investment funds, Read More
In fact, the SEC rejected the request for a Bitcoin ETF last year, citing the cryptocurrency’s price volatility. However, in a presentation made to the SEC last week, SolidX addressed regulators’ doubts about the volatility in the crypto market, saying that significant changes have been made in the “product, market structure and overall circumstances.”
On the latest request for approval of the Bitcoin ETF, which comes from blockchain platform SolidX via the Chicago Board of Exchange, the SEC said it needs more time to decide. In a statement on its website, the SEC said it will make its decision by Sept. 30.
“The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change,” SEC said.
Experts believe the issue regarding Bitcoin custody is primarily to be blamed for the delay. Since the Bitcoin ETF must be backed by physical Bitcoins, there seems to be some confusion over who will store these coins: the Chicago Board of Exchange or a third party. Reports suggest Goldman Sachs is working on a plan to act as custodian of digital currencies on behalf of funds betting on the cryptocurrency.
Bitcoin price crashes
The Bitcoin price dropped about 10% following the SEC update. The price fell from $7,100 to under $6,500, triggering even a bigger drop in other cryptocurrencies like Ethereum, Ripple and Bitcoin Cash.
This latest selloff in cryptocurrencies has reduced the overall market value of virtual currencies (via Coinmarketcap.com) to $230 billion, the lowest since November. Since the peak in January, cryptocurrencies have now lost about $606 billion in value.
Bitcoin, the world’s largest cryptocurrency by value, hit a record high of near-$20,000 in December 2017. However, the coin dropped below $6,000 in June and has since been in recovery mode.
Will SEC approval come next year?
VanEck is not the only one making efforts to get approval for a Bitcoin ETF. The SEC also recently rejected a second attempt by Cameron and Tyler Winklevoss, the founders of crypto exchange Gemini, for a similar ETF.
For some, the SEC’s delay was disappointing, but for others, it meant nothing. In fact, BKCM LLC founder and CEO Brian Kelly does not expect an approval for a Bitcoin ETF this year. The analyst believes the SEC won’t approve the ETF until February 2019.
“We’ve had this big runup, we’ve had a little bit of a sell-off today. If you are selling today after this decision, its the wrong way to do crypto investing,” Kelly told CNBC Fast Money panelists. The expert might be suggesting that holding the coin could be a smarter decision. Joseph Young, an editor at NewsBTC and a long-time crypto analyst, agrees with Kelly on the 2019 approval.
Young hinted about that last month, tweeting, “Many people reacted negatively when I said the first Bitcoin ETF most likely will not happen until February 2019 because the SEC does not have any reason to rush before the final date.”
Canaccord Genuity, the largest full-service investment bank in Canada, also believes the approval will come next year. Canaccord noted in its latest report that the Bitcoin ETF approval is “on the horizon,” but the SEC will likely “extend its deadline, in which case a decision may not be made until March 2019.”