The SEC decides not to appeal
In a significant development the SEC or the U.S. Securities and Exchange Commission has decided not to appeal against a Grayscale's ETF proposal
Any ETF related news always get a lot of attention from the media as they all have the backing of big names belonging to the financial sector.
More and more big players are making a bee line to launch a crypto ETF
The general narrative has been that the launch of these ETF's would bring fresh and big money into the crypto space.
Another point of attraction is that non crypto investors would be able to get their skin into crypto with these ETF's
In spite of the great euphoria and bullish feel it is very crucial to be discerning and keep an eye on the potential dark side of this new development.
Through this article the main aim is to bring to light the challenges
and the hidden risks that these crypto ETFs may present to not only
the individual investors but also the crypto market.
Centralized Vs Decentralized Exchanges
There are many forms of Cryptocurrency exchanges like the entralized exchanges,and FTX is the most talked about one after its collapse.
The role of the Centralized exchanges is to retain control of their client’s private keys and also mandate a Know Your Customer (KYC) process to deter people from unlawful activities.
In contrast the decentralized crypto exchange do not have centralized ownership. They carry out the trades without taking control of a users keys or his crypto.
This also eliminates the need for intermediaries and allows the users to bypass the KYC process. It is very important and particularly significant for individuals who are living under repressive governments. It offers them an opportunity to participate.
Is centralization and ETF a way to lose control of your crypto freedom
In self custodial wallets and decentralized exchanges the users maintain full control over their private keys and have sole responsibility for securing their funds, which can also be staked to generate interest.
The primary purpose of the cryptocurrency industry’s is to provide these advantages and specially to those individuals who have no access
to traditional banking services. On the other hand, ETFs are
inherently centralized products, which conflict with the decentralized essence of Bitcoin and other cryptocurrencies. They do not incorporate the foundational benefits of cryptocurrencies and neither do they encourage new users to engage in the space.
ETFs introduce the concept of “paper” Bitcoin, thus representing BTC only on a theoretical level. Without the ability to withdraw the owned Bitcoin.This poses a threat to the core principles of decentralization and trustless transactions that go with Bitcoin.
Regulatory Risks associated with ETF’s
The process of getting approval for financial products is full of complications and multiple regulations.
This is full of lags and involves its share of uncertainties.
So far approvals of any financial instruments related to crypto have seen a lot of roadblocks from the side of the SEC.
Their hesitance and perhaps skepticism stems from a so called concerns about potential fraud and manipulation within the underlying market.
Todd Rosenbluth, head of research at VettaFi, pointed out that the earlier expected government shutdown might further complicate the matters for ETF applications seeking approval.
According to Reuters the SEC has postponed its decision on whether to approve applications for spot Bitcoin ETFs to mid-October. Todd Sohn,who is the ETF and technical strategist at Strategas Securities, noted that this delay only extends the ongoing deliberation surrounding spot Bitcoin ETFs.Since both the investors and issuers may be growing impatient with the process, so a shutdown will only add to their frustration.
Analysts have also cautioned that the listed funds could face great volatility.
Since the shutdown is now avoided, Mike Dudas a crypto enthusiast, wrote on X that he is looking forward to 6 Bitcoin ETF decisions by the SEC as they have no reason to postpone the decision anymore.
Eric Balchunas who is a Bloomberg ETF analyst, in an earlier post on X noted that Valkyrie has recently communicated that they will refrain from purchasing Ether futures until they become operational. They have also decided to sell the Ether futures they had previously acquired in an attempt to expedite the process.
As per Hector McNeil, co-CEO and founder of HANetf, ETFs essentially act as pass-through vehicles.
Therefore, changes in the underlying markets will naturally have repercussions on the ETF portfolio’s as well.
How profitable would the ETF be?
These ETF's could push the price of BTC quite high making it further difficult for an individual to own an entire BTC.
Only the fund managers managing the ETF would make the chunk of the money as they would tend to control the markets.
This may squeeze out the genuine new crypto investors into a minority.
Further SEC Delays on Crypto ETFs
The BTC ETF’s have seen numerous delays and rejections. However we are hopeful about their future.
So many ETH ETF’s have already started trading in the United States.
Investment firms, including
ProShares,
VanEck,
Bitwise,
Valkyrie,
Kelly, and Volshares,
Have collectively introduced nine ETFs on the Chicago Board Options Exchange (CBOE). This marks the first time trading of such ETFs related to Ethereum in the U.S. market.
ProShares introduced three funds in this launch: the Ether Strategy Fund (EETH), the Bitcoin and Ether Strategy ETF
Final thoughts
Even though the idea of an ETF may seem to be enticing and bring fresh money from the investors who are not exposed to the crypto space it does that at the cost of a tradeoff.
Investors are trading off their freedom to own their crypto.
In any ETF the investors hand over the money to the fund manager and they do not have any ownership of their private keys.
This defeats the purpose of self custody and decentralization.
So would crypto evolve into another form of FIAT that is fully controlled by central banks and governments ?
That is a question that needs some serious answers.
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