Yesterday’s announcement that the Securities and Exchange Commission’s decision on the VanEck Bitcoin ETF will wait brought the potential of cryptocurrency ETFs back into the limelight. However, what exactly are they – and why do people want a 2019 crypto ETF?
Exchange-traded funds are nothing new
Put simply, ETF is short for ”exchange-traded fund” – a type of investment fund traded on a traditional stock exchange. As such, there is nothing revolutionary about an exchange-traded fund all on its own.
Rather, ETFs have already been extensively used in order to trade assets that, in general, have custody-related issues. For example, commodities and stores-of-value such as gold and silver are oftentimes traded through the use of ETFs, due to the complexities of holding actual gold.
An exchange-traded fund can be seen as a ”basket” of a particular asset class. Moreover, ETFs are designed to closely follow the index performance of the asset in question. Consequently, ETFs can ”package” complex assets classes into reliable investment vehicles – making it dramatically easier for investors to invest.
A crypto ETF could make cryptocurrency investments far easier
Although ETFs are nothing groundbreaking, the potential for cryptocurrency ETFs is especially interesting. Cryptocurrencies are also a complex asset class, which faces custody issues of its own. As such, a cryptocurrency ETF could give traditional investors an easy way to invest in cryptocurrencies.
It is already clear that investors are increasingly looking to cryptocurrencies to balance their portfolios. Cryptocurrencies can offset stock market losses incurred by, for example, the brewing trade war between the United States and China.
Subsequently, it becomes vital for investors to have an easy way to trade cryptocurrencies. A cryptocurrency ETF could theoretically provide just this. Moreover, it could – in theory – allow investors to effectively invest in cryptocurrencies on traditional stock exchanges.
Why have cryptocurrency ETFs been rejected?
With this in mind, a cryptocurrency ETF seems like a good idea both for investors and cryptocurrency holders. This is especially true since a crypto ETF could boost cryptocurrency prices, and could even trigger the next crypto bull run.
However, for a cryptocurrency ETF to have a truly global impact, it would need to be approved in the US. This means that the United States Securities and Exchange Commission (SEC) first needs to approve it.
Furthermore, the SEC has been notoriously hesitant in approving a crypto ETF. Yesterday’s delay by the SEC regarding the VanEck Bitcoin ETF was merely the latest sign of indecision from the Commission.
2019 crypto ETF?
What’s more, the past year has seen the SEC reject a number of cryptocurrency ETFs. However, each rejected crypto ETF has seemingly addressed more and more of the SEC’s concerns. As such, a 2019 crypto ETF is looking increasingly more likely.
Additionally, it should be noted that cryptocurrency ETFs actually already have some support within the Securities and Exchange Commission.
The SEC Commissioner Hester Peirce has been especially positive regarding the potential of a crypto ETF. In fact, she is affectionately referred to as “Crypto Mom” by the cryptocurrency community due to her support of a cryptocurrency ETF.
In fact, Peirce went against the official decision of the SEC last year when they rejected a Bitcoin ETF. Peirce actually posted a lengthy public dissent criticizing the SEC’s actions, noting she “respectfully disagreed with her colleagues“.
Hester Peirce: ”The time is right” for a cryptocurrency ETF
More recently, Peirce appeared at the Consensus 2019 conference in New York. At the event, she further detailed her dissatisfaction with how cryptocurrency ETFs have been handled during the past year.
Furthermore, she called for the SEC to provide more guidance regarding what regulatory frameworks a crypto ETF would need to follow:
“I thought the time was right a year ago — even longer than that … My first chance to comment on it was a year ago … Certainly the time is right, but there are still questions floating around the SEC that need to be answered as much as possible by you all.“
Could a cryptocurrency ETF be bad?
Nevertheless, some have come out hard against the very notion of a crypto ETF. For example, last year saw Andreas Antonopoulos criticize cryptocurrency ETFs, calling them “a terrible idea”.
At the time, Antonopoulos noted that a Bitcoin ETF would mean that investors would not really own Bitcoin – as these would be handled by a financial intermediary. Although this aspect might sound trivial at first, it actually has some substantial consequences.
Cryptocurrencies are, at their core, intended to be financial instruments for economic freedom. Specifically, cryptocurrencies are intended to be directly controlled by their holders. Consequently, cryptocurrencies are intended to eliminate the need for powerful financial intermediaries such as banks.
A 2019 crypto ETF might be embraced by investors, but it would also hand back financial control to intermediaries. This could betray the underlying philosophy of cryptocurrencies.
In summary, therefore, it is far from clear-cut whether a cryptocurrency ETF would truly be a good idea. While it would undoubtedly make it easier to invest in cryptocurrencies, there is an argument to be made for avoiding just this.
Nevertheless, this is an excellent question to ponder while awaiting the SEC’s final decision regarding the VanEck Bitcoin ETF.
Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the blockchain industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.