The Bitcoin bulls are awaiting the Bitcoin ETF. To have a US main listed ETF the SEC is going to have to bless it and the SEC like the Federal Reserve is a truly profound regulator.
The creation of a Bitcoin ETF is not to be taken on lightly as an ETF is a powerful thing with all sorts of feedback loops with the potential for trouble.
Often the ETF is simply a derivative of a derivative and nothing much at all to do with the underlying asset. That underlying assets value can be more influence by the ETF and speculation and equity markets than anything intrinsic about the value of the basic asset the ETF sets out to represent.
The history of ETF starts it long and successful journey with the invest genus Burton Malkiel and his all time classic book “A randon walk down wall street.” It basically states, fund managers don’t beat the index, trading doesn’t beat the index, wall street is a sham of flimflam salesmanship that doesn’t beat the index.
So buy and hold the index or something approximate to it and go home and just pile up index-ness. ETF’s and tracking funds followed that allowed you to do just that.
Because Malkiel is right, ETFs have flourished but like all financial inventions at some point operators create ‘EFT’ for the absolute opposite purpose of the use they where created for. Reverse leverage ETFs appear for example and trackers that don’t track. An idea designed to create investment paragons for long term wealth generation like the SP500 spider, now ends up twisted by knaves to male a trap for fools. (Thanks Kipling)
It is exactly this the SEC is concerned about.
Make no mistake, Bitcoin and all Crypto has a core Achilles heal, security. It is a fraudster magnet. Financial services are in general also such a morass of shady behaviour as the legion of regulators prove by being unable to stamp out criminality in even the top tier of financial operators. In unregulated crypto anyone active will soon be attacked by the zombie hordes of fraud.
So letting crypto into the castle is a major concern to the regulator.
But is must one day be allowed in, because it seems likely to be an unstoppable juggernaut and it will need to be embrace and controlled.
Bears might see that as the beginning of an end, in the way I did about the creation of the futures contract last winter. Bitcoin thrives on Chaos, it is a child of anarchy. It can never thrive within a curated walled garden of commitees.
The bulls see it as a vastly increased market of demand for Bitcoin which will pull the physical market to amazing highs.
It could happen. However my observation is the Wall Street creates synthetic commodities and this is what it will do with Bitcoin. Automagically the ETF tail will not wag the Bitcoin dog and people will say, “they’ve made and sold fake bit coins. No fair.” Then the may end up saying “they are making fake bitcoins and spoiling real Bitcoin with them.”
This is how banking works. You put $1 in the bank, the make another 9 fake dollars. That is the core of the financial system. When gold was money back into the mists of time, it used to be that you put 1oz of gold with the goldsmith and he lent out another 14 paper gold ouncesat high interest.
So don’t expect Wall Street do go a different route this time. But when an ETF is granted it will be interesting to see the system it uses. It could be a benign fair instrument designed as a win/win for all participants.
…. Lets all join hands and sing.