Why Bitcoin ETFs Are Closer To Reality

August 16, 2017

‘75% Chance’ For A Bitcoin ETF

Bitcoin derivatives trading on regulated exchanges sometime this year is not something many would have imagined only a few months ago. It's being made possible thanks to the CFTC's hand-off approach to digital currencies.

While quick to note that it is not endorsing the "use of digital currency generally, or bitcoin specifically," the CFTC's approach contrasts sharply with that of the Securities and Exchange Commission (SEC), which rejected a pair of bitcoin ETFs earlier this year, citing a lack of regulation in the bitcoin market.

Which raises the question―if bitcoin derivatives begin trading on regulated exchanges―could the SEC change its mind about the digital currency and approve the first bitcoin ETF?

For Spencer Bogart, head of research for Blockchain Capital, the answer to that question is unequivocally "yes."

"If we actually get bitcoin derivatives and they generate significant volume―which I think they would―then that paves the way to an ETF approval," explained Bogart. "If you look at what the SEC said in its ETF disapproval from earlier this year, it essentially needed to see the underlying bitcoin spot market become more regulated, or it needed to see a fully functional derivates ecosystem that is regulated."

"It looks like we’re going to get the latter," he added, while noting that he puts the chances of a bitcoin ETF coming to market in the next 18 months at over 75%.

Issuers Positioning Themselves

Indeed, some ETF issuers are already positioning themselves for a more favorable shift in the SEC's view of bitcoin once derivatives are launched. Last Friday, VanEck filed for a new actively managed ETF called the VanEck Vectors Bitcoin Strategy ETF.

The proposed fund would invest in U.S. exchange-traded bitcoin-linked derivative instruments, according to the prospectus.

There's also the potential for the Winklevoss Bitcoin ETF (COIN)—which was rejected by the SEC in March—to make a comeback in light of the new developments in the bitcoin market. The commission is currently reviewing its initial decision.

COIN was designed to hold "physical" bitcoin, but presumably, could easily pivot to holding bitcoin futures if that made it more likely to be approved. After all, the same Winklevoss twins who are behind COIN also run Gemini, the digital asset exchange that is collaborating with the CBOE to launch bitcoin futures.

 

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