ETF.com: Does the Trump administration have any influence on the process?
Bogart: I’m hearing there are a number of bitcoin-friendly people that have taken up various posts within the administration. I'm hearing that it's, on the margin, at least a little bit positive for bitcoin.
I'm not sure if any of those people are in influential roles at the SEC. They may or may not impact the ETF decision, but overall, the probability of onerous legislation or regulation against bitcoin decreases on the margin with the administration change.
ETF.com: All that said, you say you believe the odds of approval aren't very high. Why is that?
Bogart: We've pegged the odds at less than 25%. That's because the very first thing the SEC lists in its own mission statement is protecting the investing public. When you think about the game theory aspect of this, if I work at the SEC and I approve this ETF and it goes well, nobody is probably going to come around and pat me on the back and give me a promotion. But if I approve it and a lot of money flows into it and something goes wrong, I'm likely to lose my job.
The SEC has gone very deep on this, and it’s really explored it far deeper than I expected it to. It would have been a pretty easy thing for it to just write off three years ago and forget about it. But I just don't know if it can get comfortable with the number of risks related to bitcoin itself.
ETF.com: If you're wrong and the SEC allows the launch, how much money do you see it attracting, and what will be the impact on the bitcoin price?
Bogart: Roughly speaking, we've estimated that at least $300 million would flow into this fund in the first week. An ETF would be the first time that the gates have been opened to bitcoin for institutional capital.
Most institutional money managers have mandates that require they invest in registered securities, and bitcoin itself is not a registered security. So for most institutional money managers, they can't touch bitcoin itself. The ETF would basically be the first time institutional money could really flow into bitcoin in a meaningful way.
The effect on price would be very profound. There's something on the order of $15 million to $60 million worth of bitcoin typically traded against the U.S. dollar on the world's major exchanges. If you're trying to source $300 million worth of bitcoin within a few days, there's really no way to do that—even in a normal market—without significantly disrupting the price.
Then you add into that the market where an ETF has just been approved and price is going to start rallying, liquidity's going to dry up really quickly just because nobody really wants to sell into that market. Everyone's going to want to hold their bitcoins in a time when the SEC has just approved an ETF.
At the same time, you're going to have a favorable shift in public perception away from "Bitcoin is only used for the sale of illegal goods" to "Oh, wow, the SEC has just given it a stamp of approval." And because you’d potentially have a much greater percentage of the population saving bitcoin, the propensity for the regulators to enact onerous regulation on bitcoin would at least decrease on the margin.
If you put all this together―you put this large sum of capital trying to flow into bitcoin at a time when price is already rallying, you add in the fact that there's a favorable shift in public perception, coupled with a marginal decline in regulatory risk―and the effect on price would be very significant.