225Research

225Research strives to find strong investment opportunities and aims to provide in-depth and insightful analysis of these opportunities for our readers.

Whats Got us Talking

Bitcoin ETFs? Just what the doctor ordered?

Image result for bitcoin logo

Bitcoin ETFs might have the potential to turn around the Bitcoin bear market. If they ever get approved

 

Bitcoin isn’t going anywhere,and at the same time, it is increasingly being considered more of a legitimate asset by the financial community as a whole. This was first reflected mid-December 2017, when Bitcoin futures were first released. In the lead up to their release, Bitcoin currency jumped from $12,000 to $14,000 in just 24 hours. Many are now expecting the release of Bitcoin ETFs to reflect a similar bull run in the currency, but that may be unlikely considering the massive change that Bitcoin has gone through since December. Remember to, all this is still dependent on the ETFs actually being approved by the SEC in the first place.  

ETF provider Direxion filed applications for 5 Bitcoin ETFs, and Arca, the US ETF exchange, filed another application in January asking the SEC for approval on a rule change which would allow Bitcoin ETFs to be traded on Arca. The date for the SEC’s announcement was July 24th, which for those with a calendar, was yesterday. Except rather than announcing their decision, the SEC pushed their decision till September 21st, citing a need to better understand all the risk and implications of a Bitcoin ETF. This is so that the SEC can ensure the security aligns with their standards.

Delaying the inevitable?

Bloomberg intelligence analysts Mike McGlone, Eric Balchunas, and Athanasios Psaepfagis recently released a piece for Bloomberg Intelligence in which they stated that they believed the SEC would not approve the Arca application. The analysts state “The SEC is increasingly sensitive to public opinion and well-aware of the potential market impact. Providers are scrambling for first-mover status, which may result in more nuanced, longer-term regulatory guidance.” (Mcglone, Balchunas, and Psaepfagis).


We believe that the SEC will approve the ETFs, cited in the reason for delay was a desire to better understand the security and ensure they align with their guidelines. The three types of bitcoin ETFs awaiting approval are non-leveraged, leveraged and inverse. Each of these options would allow for a safer and more stable investment into Bitcoin, giving the common retail investor better and safer access to the market. In comparison to other ETFs, a Bitcoin ETF would be incredibly volatile, especially with the leveraged ETFs. For this reason, we would expect the SEC to first approve non-leveraged ETFs before leveraged as well as inverse ones, which allows for shorting without the risk of losing 100% of the investment. We also feel that as Bitcoin futures have already received approval, albeit under different market circumstances, the SEC would be more open to approving ETFs, as Bitcoin has proven it can be used as an underlying asset for various securities. Finally the SEC has already approve some Cryptocurrency related ETFs in the form of Blockchain related ETFs. These Blockchain ETF’s usually trade companies which directly benefit from crypto-currencies. This would make so that Blockchain, which may develop technology for Cryptos, can be held in these ETFs, but not the cryptocurrency itself. These already existing ETFs show a path to which the SEC could end up approving the proposed Arca law and allowing for Bitcoin ETFs    

If ETFs are approved, what will the market do?

As with any new security announcement such as an ETF, at the very least a potential pop in price can be expected. The question is how much and for how long? When the last Bitcoin related security news was announced, which was Bitcoin futures, Bitcoin gained $2000 within 24 hours. This was back in December however, at a time when Bitcoin could do no wrong, causing any remotely positive news to almost instantly result in a 10% gain for the currency. Now is a different time however, as Bitcoin is currently trading at around $8,200, which represents a decline of 55% since those futures were last announced. Bitcoin’s growth has flipped upside-down, going from what was a bull market on steroids, to a steady bear market. Just goes to show how sentiment can change so fast. The volatility, while still a roller coaster that could make any one sick, has calmed down slightly, and public eye has shifted away from the currency. All these factors will most certainly mute the boost that these potential Bitcoin ETFs will provide the currency. We don’t expect any major >20% jump in value for the currency. However, this may be the turn around bitcoin needs, ETFs that might just bring back the return of a bull-crypto market. Just this time, don’t expect to become a millionaire of a $10 trade.