Bitcoin (BTC) has had an impressive price run since the announcement of the approval by the United States Securities Commission of the exchange-traded fund (ETF, for its acronym in English) Bitcoin futures trading from ProShares in early October, hitting a new all-time high of over $ 69,000 on Nov. 10, according to data from TradingView.
However, financial watchdogs cooled down by reject VanEck’s proposal for a spot ETF on November 12, what acted like Trigger for the price of the flagship cryptocurrency to fall to a 30-day low at $ 55,705 on Nov. 19. As of this writing, the token is trading in the $ 56,000 range.
An ETF is a security class that tracks an asset or a basket of assets, in this case Bitcoin, and can be traded on a stock exchange like any other stock.. The Proshares BTC ETF has been the first ETF to gain SEC approval, after more than 20 applications have been submitted to financial regulators in the past.
Jan van Eck, CEO of VanEck, was unhappy with the rejection of his company’s ETF.
We are disappointed in today’s update from the SEC declining approval of our physical bitcoin ETF. We believe that investors should be able to gain #BTC exposure through a regulated fund and that a non-futures ETF structure is the superior approach. @tyler @gaborgurbacs
– Jan van Eck (@ JanvanEck3) November 12, 2021
We are disappointed in today’s SEC update, which rejects the approval of our physical bitcoin ETF. We believe that investors should be able to gain exposure to BTC through a regulated fund and that an ETF structure without futures is the superior approach.
The difference between the approved Bitcoin ETFs that are currently listed on various US stock exchanges such as the Nasdaq or the CBOE and the VanEck rejected Bitcoin ETF is that VanEck’s ETF proposal was for a spot ETF, and the approved ETFs are all futures-based ETFs.
Van Eck said that a spot ETF is the best option, and tweeted that: “We believe that Investors should be able to gain exposure to BTC through a regulated fund and that a non-futures based ETF structure is the superior approach“.
SEC Chairman Gary Gensler has previously expressed support for BTC ETFs based on futures rather than price. In the official decision to reject VanEck’s ETF application, the SEC said the product did not meet the requirement ‘that the rules of a national stock exchange be “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest“‘.
Futures are usually a higher risk product
However, it could be that US financial regulators, by rejecting the VanEck Spot ETF, they have unleashed a riskier product for the same investors that it intends to protect, since Allows Institutional Wall Street Money to Leverage on Bitcoin Price Movements.
A futures contract gives the owner or buyer of the contract the obligation to buy the underlying asset and the writer or seller of the contract the obligation to sell and deliver the asset at a specified price on a specified future date., unless the holder closes his position before the expiration date.
In combination with options, these financial instruments are often used to hedge other positions in the investor’s portfolio or to obtain profits through pure speculation without the need to buy the underlying asset.. These markets are often dominated by institutional investors who have large pockets to cushion any losses in their portfolio.
Although futures could only be used to minimize risk to an investor’s profile, where they become more risky is in the use of leverage in the futures markets. Leverage is the ability to use borrowed funds and / or debt as trading capital in the market to amplify the returns on a position.. Basically, investors use it to multiply their buying power in the markets.
Although leverage also exists in spot markets, its impact is significantly less. Nevertheless, with futures contracts, the leverage can be up to 95%, which implies that an investor can easily buy an options contract with 5% of the required capital and borrow the rest. This means that any small fluctuation in the price of the underlying asset will have a big impact on the contract, leading to a margin call for investors due to forced liquidations of futures contracts.
A margin call is a scenario in which the value of the investor’s margins has fallen below the amount required by the exchange or broker. This forces investors to deposit an amount known as maintenance margin into the account to replenish the minimum allowable value. This could also lead to investors having to sell other assets in their portfolios to offset this amount..
It is important to note that these risks inherent in futures contracts they have nothing to do with the nature of the underlying products, but with the methodology with which futures contracts are traded in financial markets. Du Jun, co-founder of crypto exchange Huobi Global, spoke to Cointelegraph about the SEC’s decision:
“Given the current situation, futures ETFs may be the best option accepted by the SEC. It is true that futures ETFs are often complex and with a higher risk profile, but futures ETFs have some characteristics that satisfy the SEC lawsuit. “
Jun considers that, to begin with, Regulators have yet to figure out the process for setting the spot price of BTC, which leads them to think that the price is vulnerable to manipulation; Thus, BTC’s directly unlinked futures ETFs would offer investors better protection.
What’s more, Futures ETFs give investors the opportunity to go both long and short on BTC, thus hedging your BTC assets rather than holding physically backed units with BTC.
Antoni Trenchev, co-founder of cryptocurrency trading platform Nexo, told Cointelegraph: “SEC Appears Not Ready to Allow Spot ETFs Yet. I have a hunch that this will happen in the near or middle future, as soon as US regulators trust their policies and the treatment of Bitcoin and other digital assets. “He said that ultimately, both products are nothing more than financial tools, and the SEC will want a variety of options..
He pointed to the SEC’s hesitancy to take risks, stating that “simply they are not willing to take any risks, which in itself is commendable considering the great pressure from eager investors for spot ETFs in the United States. “
Nevertheless, not all market participants have a positive view of the SEC’s approach. Marie Tatibouet, director of marketing for crypto exchange Gate.io, told Cointelegraph: “It took the US SEC about four years to figure out how a BTC futures ETF works. It will probably take them two to three more years to figure out cash ETFs“.
Tatibouet said that since BTC futures contracts are not tied to the price of Bitcoin directly, but to the price of Bitcoin futures, whose prices are “much easier” to manipulate than spot prices, this could be one of the reasons the SEC approved futures ETFs.
Canada supports spot ETFs
Although the launch of Bitcoin futures ETFs in the United States was celebrated by the community as a watershed moment for the cryptocurrency asset class, it was not the first country to allow cryptocurrency-related ETFs. America’s friendly neighbor, Canada, has had Bitcoin ETFs trading on various exchanges for most of this year.
Canada saw the launch of North America’s first Bitcoin ETF, the Purpose Bitcoin ETF, in February of this year.. Is about a physically backed Bitcoin ETF which has been successful since its launch. Evolve Investments also launched the Evolve Bitcoin ETF shortly after, which is also a spot ETF.. The Purpose Bitcoin ETFs and Evolve Bitcoin ETFs currently have $ 1.4 billion and $ 203 million in assets under management, respectively. The companies behind these ETFs have also launched Ether (ETH) -based ETFs following the success of their Bitcoin ETFs..
According to Trenchev of Nexos, “Canada could be seen as the Savior of spot BTC ETFs. They have been available there for a long time and things seem to be working. It’s always an advantage to have examples to look at – regardless of success or failure – and I’m sure this will be the case when it comes to US spot ETFs. “
Jun pointed out the differences in the legal landscape of the US and Canada, stating that “Canada’s regulatory environment is more flexible, and Canada is more focused on innovation. They often dare to take the lead in financial innovation, like the first modern ETFs in 1990 and the first cannabis ETF launch in 2017. But the regulatory environment of the US market is much stricter“.
Offering a fresh perspective on the matter, the legendary merchant Peter Brandt mentioned in Twitter excuse me BTC maximalists should oppose ETFs and spot ETFs entirely.
IMO, #Bitcoin maximalists should oppose spot $ BTC ETFs in US Bitcoin’s store of value story depends on its scarcity and even some difficulty to purchase. Let’s not encourage greedy grub-hungry Wall Street to convert BTC into a vending machine asset.
Say NO to ETFs– Peter Brandt (@PeterLBrandt) November 13, 2021
In my opinion, Bitcoin maximalists should oppose US spot BTC ETFs. The history of Bitcoin’s store of value hinges on its scarcity and even some difficulty in buying it. Let’s not encourage greedy food hungry Wall Street to turn BTC into a vending machine asset.
It is debatable whether ETFs will support the growth of BTC as an asset in the long term in the way originally intended, and it is undeniable that the development of cryptocurrency ETFs have a great impact on market sentiments and therefore eventually the price of Bitcoin, which is central to the entire discussion in question.
Keep reading: