Suddenly, Bitcoin took a turn for the worst. The Winklevoss twins, crypto investors and billionaires, have failed at their proposal for a Bitcoin ETF. Now, you may be wondering what an ETF is, the impact and why its important.
Let me break it down
So, an ETF stands for an exchange traded fund. It is a marketable security that trades similarly to a stock. They have more liquidity than other investments such as mutual funds and are attractive to retail investors for this reason.
THE HUGE THING HERE: In order for an ETF to work, the fund MUST actually own the asset that is being traded. Meaning, that an institutional sized broker such as ETrade or TDAmeritrade will be forced to buy bitcoin in order to stay solvent to provide for the ETF. Yet, as investors in an ETF, you receive the effects of the volatility without owning the private keys. The fund owns the Bitcoin, but you do not, just "shares". Its a bit confusing, so go ahead and ask me any questions in the comments.
So...?
There are plenty of arbitrage opportunities through ETFs because of the way they work. Also, the creation and redemption of the ETF is really important and where companies are struggling. Only "APs" can create and redeem the shares of an ETF, an AP is simply an authorized participant(Winklevoss twins, had the ETF gone through). The AP assembles a portfolio of the asset(Bitcoin), and is able to redeem the "shares". Through this process, there will be hundreds of millions of dollars of buying pressure for Bitcoin due to the creation process. APs then return "shares" for the underlying asset itself(Bitcoin), and the amount held by the AP is disclosed everyday to the general public.
ETFs provide the opportunity to margin trade (buy long, sell short) for many assets as well as arbitrage opportunities as previously mentioned. Essentially, if an investor can buy "shares" of the asset cheaper than the actual value of the asset, they can then sell the underlying asset and keep the difference. This, I'd imagine, will be mostly controlled by bots.
The S&P500 is an ETF, its just an index, which is a diverse combination of many stocks. Many people look to invest in ETFs to diversify their portfolio, the hope here is that people will eventually look to Bitcoin as a safe haven for their investments. Interestingly, Mark Cuban has suggested to allocate 10% of your investments to Bitcoin. This ETF will allow the average Joe to do so.
This is truly a MASSIVE step in the right direction for Bitcoin... I am excited for the future of crypto!
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Cheers,
Andrew
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Posted from my blog with SteemPress : http://bullsvsbears.vornix.blog/2018/07/26/bitcoin-etf-announcement-reaction/