Why does the encryption market expect bitcoin ETF?
Nov 23, 2024
What is a bitcoin ETF? Why did Grayscale apply to convert its GBTC into a bitcoin ETF? Why has the US SEC refused to pass the Bitcoin ETF? Once the bitcoin ETF is approved, what impact will it bring to the market? Focusing on the most concerned issues in the current market, we will analyze them in simple terms in this article.
What is a bitcoin ETF?
First of all, let's take a look at ETF-its full name is Exchange-Traded Fund, that is, exchange-traded fund. It is an open-end fund with variable fund shares, which is listed and traded on the exchange. It is a very mature trading product in the traditional financial market. It combines the operating characteristics of closed-end funds and open-end funds. Investors can purchase and redeem fund shares, and at the same time, they can buy and sell ETF shares in the secondary market at market prices, just like closed-end funds. However, the purchase and redemption must exchange a basket of shares for fund shares or a basket of shares for fund shares.
Similarly, bitcoin ETF is to replace the transaction target in traditional financial market ETF products with bitcoin. Slightly different, traditional ETFs usually simulate a scattered portfolio or asset index, and it may be difficult for ordinary investors to build and maintain such a portfolio at low cost, while bitcoin ETFs only track the price of bitcoin, a single encrypted asset.
Repeatedly rejected bitcoin ETF applications
In fact, institutional and individual investors have submitted applications for Bitcoin ETFs to the US SEC for a long time. As early as 2013, the idea of Bitcoin ETFs was already put forward. In 2016, Winklevoss brothers took the lead in applying to the US SEC for the issuance of bitcoin ETFs, and there have been more than a dozen applications since then. The grayscale mentioned above is not the first time to file a similar application with the SEC. Also in 2016, Grayscale submitted a bitcoin ETF application, and after communicating with the SEC, it finally withdrew the application. According to incomplete statistics, in the following years, SolidX, VANEck, Exchange Listed Funds Trust, Proshares BTC ETF, First Trust, Direxion, Bitwise Bitcoin ETF and many other institutions submitted applications for Bitcoin ETF to the US SEC, but none of them were approved.
At present, there are many bitcoin trust trading products in the market, including gray scale, which provide safe and compliant investment channels for qualified investors. However, with the further development of the encryption market, transaction targets such as GBTC obviously cannot meet the actual needs of investors. This can be seen from the negative premium of GBTC that we have been paying attention to.
According to the statistical data of OKlink, as of April 13th, GTBC had a negative premium in the secondary market for 44 days. The reason is that in addition to the increased competition of similar products, the high investment threshold, the lock-up period of several months and the lack of liquidity of "GBTC" are urgent problems to be solved. After all, in any investment market, the convenience of transactions and the utilization rate of funds are issues that investors are quite concerned about. In this context, the demand for bitcoin ETF by encryption market and professional investors is becoming more and more urgent.
Why has the US SEC never applied through Bitcoin ETF?
Above, we listed some records of submitting applications for Bitcoin ETFs to the US SEC in the past five years. The initiators included celebrities like Winklevoss brothers and top players in the industry like CBOE, but none of them passed.
As far as the reasons given by the SEC are concerned, the possible problem of bitcoin price manipulation is the most concerned and worried. Jay Clayton, then chairman of the US SEC, said in June 2019 that "price manipulation is a potential problem that the SEC is worried about."
Christopher Matta, co-founder of Crescent Crypto Asset Management, also talked about this issue: "While rejecting other ETFs, the SEC has always stressed that it wants to see a large-scale regulated market, including monitoring sharing agreements to monitor manipulation activities."
At the same time, the SEC also acknowledges that investors can indeed get an extra layer of protection by trading exchange-based bitcoin products.
In 2018, in the SEC's reply to GraniteShares' rejection letter, it was mentioned that "compared with the unregulated bitcoin spot trading market, trading bitcoin ETFs in national securities exchanges may provide some additional protection for investors, but the Committee must consider whether the proposal meets the applicable requirements of each trading law while considering this potential benefit."
In short, the attitude of the SEC in the United States can be summarized as follows: I want to protect ordinary investors, and I also want to bring bitcoin ETF products into my supervision scope, but you have to show me that you deserve to be supervised.
Of course, there are also many criticisms about the attitude of the SEC in the United States, which refuses all comers. Hester, a member of its Committee, once bluntly said in an interview: "The move to stop Bitcoin ETF is a kind of harm to investors and innovators."
However, as Jay Clayton left the SEC last month and the enthusiasm of market participants continued to rise, everyone seemed to have new expectations for the approval of Bitcoin ETF.
If the Bitcoin ETF is approved, what impact will it bring?
Although the US SEC has been gritting its teeth on the approval of bitcoin ETFs, its neighbor Canada approved the first bitcoin ETF in North America last month. The bitcoin ETF owned by PurposeInvestments reached a trading volume of US$ 165 million on the first day, and broke through the asset management scale of US$ 1 billion a month later. Currently, it holds 14086.295 BTCs.
Comparing the influence of the United States and Canada, it can be optimistically speculated that once the US SEC approves the Bitcoin ETF, it will definitely open a new door to the encryption world and let more investors have more convenient channels to invest in Bitcoin. Here, we may wish to review the trend of gold ETF after its launch, and use it as a reference to predict the future trend of Bitcoin.
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