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How Bitcoin's Rally May Harm Bitcoin

How Bitcoin's Rally May Harm Bitcoin 101
Source: iStock/Toa55

The recent bitcoin rally may turn out to do more harm than good for the prospects of getting a bitcoin-backed exchange traded fund (ETF) approved by the US Securities and Exchange Commission (SEC) this year, a new report suggested.

With the bitcoin market soaring again, some worry that the SEC will be hesitant to add fuel to the fire. “The SEC doesn’t want any part of adding to or influencing some speculative bubble,” said Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence. He claims he’s now “10 times more pessimistic” about a fund being approved.

In a letter from the SEC in January, valuation and volatility were cited as key concerns for the regulator regarding a bitcoin ETF. That letter, however, was written in the aftermath of the explosive growth that brought bitcoin to levels close to USD 20,000, a far cry from the situation in the market today.

As reported by Cryptonews.com, in the letter, written by the SEC’s director Dalia Blass, the commission remained concerned over the funds which offer cryptocurrency related products rather than cryptocurrencies, where the risk of volatility would increase from the influence of underlying markets.

A few other points mentioned in the letter:

  • In order to be clear what participants would pay for an ETF, and what they would receive when they redeem or sell, assets must be valued daily to ascertain the net asset value.
  • What are the steps that a Bitcoin related fund products would take to ensure that they had the necessary liquid assets is of concern, too.
  • The persistent worry about cryptocurrencies, over how they can be manipulated, was not left out of the list of anxieties by the Commission.

The ETF application that bitcoin investors are most optimistic about was filed in June by New York-based VanEck through the Chicago Board of Options Exchange (CBOE) – a company that certainly has a name for itself as being a heavyweight in the world of finance.

However, Jake Chervinsky, a US-based lawyer at Kobre & Kim, a law firm, suggested that due to rulemaking procedures the SEC can, and probably will, delay its decision on the VanEck/SolidX commodity-backed bitcoin ETF until February 21, 2019.

Bitcoin is currently up more than 40% since the lows in late June, partly driven by speculation that a bitcoin ETF would get approved in the US this year. An ETF is seen as an important step on the way to facilitate the mainstream adoption of bitcoin as an investment asset, much in the same way as futures contracts helped legitimize bitcoin as a trading asset last year. Meanwhile, the cryptoverse is growing restless, trying to persuade the SEC to approve a bitcoin ETF.

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