Bitcoin’s price has been recently going up to steady levels of around $8,500, and now the currency is again trading below $8,000. Many have speculated that the primary reason for the renewed interest in Bitcoin is the upcoming Bitcoin ETF.
A Bitcoin ETF will mean a lot to the market, especially to hodlers. Unlike Bitcoin futures, a Bitcoin ETF can only signal one thing: buy. There is no real speculation once you have an ETF, you essentially bet that the price will go up and you buy the ETF to diversify your portfolio.
Now, amidst questions whether a Bitcoin ETF is soon coming, there are at least three primary issues with such an instrument coming to life any time soon.
The primary reason why most Bitcoin ETFs applications have been rejected so far is the issue of security. The SEC rejected the Winklevoss brothers their application for an ETF out of security issues. According to press, one of the most infamous “incidents” proving the insecurity of Bitcoin is the Mt. Gox. heist in April 2014 – almost $500 million worth of Bitcoin was stolen. After the hack, the exchange filed for liquidation.
Such concerns cannot be ignored, and it is understandable that security issues will be primary hurdles for the launch of a Bitcoin ETF.
However, there is hope that recent improvements in companies’ managing Bitcoin and an eventual ETF will take the necessary precautions before applying for the ETF. Just recently, in June 2018, VanEck Associates and SolidX have applied for a Bitcoin ETF and their application is yet to be voted on by the SEC.
Bitcoin ETF Valuation
Each and every ETF needs to be valued at the end of every trading day. Such a requirement will be difficult for a Bitcoin ETF to fulfil, because of the nature of digital currencies and the fact that their valuation is not 100% clear. By measuring the valuation of an ETF, the fund performance is measured, which is extremely important for investors and how they perceive their investment.
There are ways to determine a Bitcoin ETF valuation, but at this point this is still an unclear point that needs to be clarified before a Bitcoin ETF comes to life.
Immaturity of the market
Probably the biggest issue with a Bitcoin ETF is the volatility and immaturity of the market. The currency has experienced huge fluctuations in its price since inception. For example, the price of Bitcoin fell by more than 60% from December 2017 up until now and the price “swings” are still ongoing on a daily basis.
Such volatility may predispose a lot of market manipulation and price volatility, all of which are considered disadvantages when it comes to ETF investors.
Once the market becomes more regulated and there are some strict agreements on what is allowed and what not when it comes to Bitcoin and its price, then all of these issues will be less significant to investors.
However, a Bitcoin ETF is highly expected, and many say that it is just a matter of time until such a financial instrument is launched.