With Bitcoin and other cryptocurrencies captivating investors, talk is again increasing about the prospects for a Bitcoin exchange traded fund.
Multiple bitcoin ETFs recently debuted in Canada, and related exchange-traded products have existed in Europe for some time.
“As investor fascination with the digital asset market continues to rise, investors have been looking to the US as the next potential market for ETFs that track digital assets,” according to FTSE Russell research. “And speculation has only increased in recent weeks with the first bitcoin ETF launch in Canada joining crypto ETP listings in Germany and Switzerland, as well as the continued popularity of the Grayscale investment trusts tracking this market.”
Sizing Up the Odds
While the ETF market has been anxiously awaiting a Bitcoin ETF, the SEC has turned down all related proposals. Investors and the digital currency universe are hoping a change in leadership at the SEC could bolster Bitcoin ETFs’ chances of success.
Positive regulatory developments may also serve to hasten the ETF approval process, or at least make an approval more likely.
One of the issues for regulators in approving a Bitcoin ETF is that there is unexplained chaos in the cryptocurrency, including illegal activity and a lack of regulation, which can generate wild swings for investors and speculators alike. This activity has decreased over time, however.
“The future development of the digital asset market depends a lot on what happens in the next few years as market events can drive regulatory policies. Newly nominated US SEC chair Gary Gensler is very knowledgeable and experienced in this area, which could be a positive but whether we see a bitcoin ETF in the U.S. will depend on market events and the nature of ETF provider filings,” said Kathleen Moriarty, senior counsel, Chapman & Cutler LLP.
Regulators have continued to cite concerns over market volatility, industry manipulation, and thin liquidity.
“Areas of the digital asset market, for example custody, have matured quite a bit in recent years. However, other areas such as risk management have not matured as much as they should and consistent pricing remains a challenge given the virtual nature of assets like cryptocurrencies,” notes Michael Coletta, manager, fintech business & technology, London Stock Exchange Group.
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