US regulators are set to deliver a landmark ruling over a first-of-its kind exchange-traded fund (ETF) for bitcoin, which could open the crypto market up to billions of dollars worth of new inflow.
The Securities and Exchange Commission (SEC) has until 14 November to approve or reject the VanEck Bitcoin ETF, which has been under review for more than seven months.
Investors have described the physically-backed, or spot, bitcoin ETF as a “seminal event” for BTC and the broader cryptocurrency market, with some hoping it will supercharge the current market rally and send bitcoin’s above $100,000 before the end of 2021.
Bitcoin is already up more than 300 per cent over the past year, reaching a new all-time high on Wednesday above $68,000, but has swung wildly in price in recent months.
The market volatility has largely been driven by major news within the crypto space, with Tesla’s announcement to accept BTC as a form of payment earlier this year driving the initial rally, before the reversal of this decision combined with China’s crackdown on cryptocurrency caused a major crash.
The latest price gains were spurred on by El Salvador’s announcement that it would introduce bitcoin as a legal form of tender, making it the first country in the world to do so, as well as rumours, and eventually approval, of the first ever bitcoin futures ETF.
The approval of a spot bitcoin ETF would be even bigger news for the market than a bitcoin futures ETF, as the fund maintains the custody of the cryptocurrency and gives investors direct bitcoin exposure, while also providing the security and regulatory protection traditional investors are used to.
“The futures-based ETFs are more expensive and less efficient than the spot-based,” explained Vetle Lunde, an analyst at Arcane Research, in a blog post last month. “This is a result of their complicated structure requiring more maintenance.
“ETFs could be very bullish for bitcoin. They will allow more institutional investors to invest in bitcoin through an easily accessible investment vehicle... [But] this could be a dicey period with high volatility. If the first final verdicts are negative, I would not be surprised to see turmoil in the futures market and new rounds of liquidations. A positive verdict, on the other hand, could lead to the opposite scenario.”
Not everyone is hopeful that it will get the go-ahead, with Eric Balchunas, a senior ETF analyst at Bloomberg, estimating the chance of the SEC approving the ETF as “about the same chance of the Eagles winning the Superbowl”. He tweeted earlier this week: “We haven’t given any formal odds but I’d say odds prob like 200-1.”
Some analysts warn a rejection could cause a reversal of the market momentum into a potentially deep bear market, as has happened following previous bull runs in 2013 and 2017, however others suggest that the days of bitcoin’s 70 per cent pullbacks are behind it due to this year’s influx of institutional capital and increase in adoption.
“While this recent price rally can be attributed to movements like the approval of the first bitcoin ETF for institutional investors, we can’t ignore the impact of significant development and adoption in emerging markets,” Ray Youssef, co-founder and CEO of Paxful, a peer-to-peer fintech platform, told The Independent.
“For example, more developers are entering the space, the Lightning Network is seeing a massive rally with the support of Twitter’s Jack Dorsey, and countries like El Salvador have adopted bitcoin as legal tender.”
Should the SEC reject the VanEck bitcoin ETF, there are currently more under consideration. Earlier this week crypto lender BlockFi and investment management firm Neuberger Berman joined forces to file a spot bitcoin ETF with the US regulators.
A research note published by the crypto platform Luno this week attributed bitcoin’s latest all-time high to “traders seeking to front-run” the response of the SEC, with the additional filings adding further to the positivity.
“Optimism is growing in the market,” it stated. “A VanEck rejection does not necessarily imply that these other filings will receive the same verdict.”