The SEC is currently reviewing multiple Bitcoin ETF applicants right now and with names like Fidelity involved, it looks like it will happen. This is not the first time, though, as the Winklevoss twins tried as early as 2017 to get approval. A source at the Commodities Futures Trading Commission explained that the chance of a bitcoin ETF being approved is "90% at this point."
One issue with this is that the purpose of ETFs, apart from allowing large banks to add fees to investing, is to bring in dumb money. By definition, ETFs are meant to make it simple to invest in a specific asset class without getting your hands dirty. For example, your friend hears that natural gas is going to take off and doesn’t want to research and find companies he likes, he just gives his money to someone else that will do all that for him. The challenge with Crypto ETFs, is that for crypto, one of the ideal ideas was that to invest in it, you had to learn about it, you had to get involved.
This means price will be driven, at least in the short run, by institutional investors pouring people’s money into mainstream crypto (probably Ethereum and Bitcoin and a few others) without actual thought into the coin itself. Investing will not be done on the viability of the coin or what it offers, but, what will make money for people who don’t want to actually know anything about crypto.
I’ll bullet point the next few ideas so maybe I will not go off on a rant:
Investors will not own any actual crypto
Not your keys…
The ETF will mimic the price of digital currency
ETF will keep investors from dealing with storage and security
Grandma will be investing*
May cause an initial surge in price as money pours in
Big chance for a downside after the glow wears off
Now, the biggie. As an ETF, investors would be able to short sell shares. r/wallstreetbets has shown us what an issue this is, and it won’t matter that crypto is decentralized. If enough hedge fund guys want to short it, the price will tank. Crypto has been built up mainly (until the last 18 months or so) by people wanting to fundamentally change the system, now it will be people wanting to grow their portfolios.
Final point, a source at the SEC says, "U.S. residents are sending money to all sorts of exotic locations to invest in unregulated [cryptocurrency] instruments with absolutely zero recourse for losing every cent they've put at risk...regulation will begin to solve those issues and keep client assets 'onshore.'" This type of thing is being done with the idea that government is going to protect us from ourselves. You are regulating something that the people already involved know very well if they lose their keys, they lose everything. We know the risk. Now you want to bring something like this to your dads Roth IRA? So, what happens when someone loses 80 percent of their ETF investment, are they going to look to Washington for help? See, this is why I did the bullet points, I just have to rant a little.
Thanks for reading.
*My grandma was a wizard at investing, much better than I will ever be.
https://www.investopedia.com/investing/bitcoin-etfs-explained/
https://www.benzinga.com/markets/cryptocurrency/21/05/21334706/sec-begins-review-of-skybridge-fidelity-bitcoin-etfs-while-wisdomtree-applies-for-ethereum