Before Bitcoin ETFs Pass, A Clear Crypto Narrative Is Needed

Tanzeel Akhtar is an independent British journalist whose work has been published in The Wall Street Journal, CNBC, FT Alphaville, Investing.com, Forbes, Euromoney and Citywire.

Bitcoin exchange-traded funds (ETFs) are having a hard time clearing the bar in the U.S., where nine applications were rejected by the Securities and Exchange Commission (SEC) yesterday.

The SEC is now moving to review the decisions. Commissioner Hester Peirce tweeted: “In English: the Commission (Chairman and Commissioners) delegates some tasks to its staff. When the staff acts in such cases, it acts on behalf of the Commission. The Commission may review the staff’s action, as will now happen here.”

If the products are ultimately approved, then the largest cryptocurrency by market value, bitcoin, would have likely seen a substantial price increase. For now, however, HODLers will have to sit tight and wait patiently with their coins shivering in cold storage a little longer. (The next major deadline is in September when VanEck and SolidX will have their joint proposal heard, though that deadline can be extended int0 2019.)

In the meantime, though, that isn’t quelling speculation about how an ETF would benefit those who hold bitcoin as an investment.

In a post on Medium from June, Ironwood’s Michael Strutton teases us some with his perspective on the potential of a bitcoin ETF, “If ETFs add 24 million U.S. investors, and the upward momentum adds 14 million from the rest of the world, then that adds $84 billion and $336 billion, respectively, to the market cap.”

“Over the past six months, bitcoin’s market cap has swung from $326 billion to $110 billion. Adding $420 billion to the market cap could put bitcoin’s price range from $26,000 to $44,000,” he continued.

The estimates, while just estimates, still showcase an underlying belief that an ETF will provide a boost for investors. Still, from yesterday’s market movements, it’s clear the opposite is true.

Crypto prices are hypersensitive to government regulation and it came as no shock when prices tumbled last night as news broke that the SEC had rejected the applications.

With so much capital at risk, the SEC has been fairly clear about its stance and the regulator is right to express concern about fraud and manipulation of bitcoin markets. It is important to spend an enormous amount of effort cataloguing the potential risks from all angles before approving a bitcoin ETF.

However, crypto fans should not take the SEC’s decision personally. There is the need for a professional-grade market which has the liquidity and depth to support the hedging activities of a U.S.-based bitcoin ETF issuer.

For perspective, it helps to take a step back and look at the U.S. ETFs market in general.

Once-upon-a-time, new and exotic ETF products were always first to be launched in the U.S., with Europe and Asia propelled by the American market. After years of unbridled growth, the introduction of new ETFs have been running into hurdles as regulators within the securities industry crackdown.

Struggling with bitcoin narrative

Still, there are tasks that the technology’s evangelists can take up in the meantime.

CoinShares, chief strategy officer, Meltem Demirors, made an excellent point on CNBC in August, when she highlighted, “The narrative around bitcoin is still really hard to grasp,” she said.

“Really the only metric we have for most cryptocurrencies is the price, and price is such an imperfect metric. What does actual utilization look like? That’s really the struggle for crypto right now,” Demirors added.

The regulatory community has put forth a similar idea – that time is on the side of innovators.

As SEC Commissioner Hester Peirce articulated in an argument in favor of a bitcoin ETF, saying: “Bitcoin is a new phenomenon, and its long-term viability is uncertain. It may succeed; it may fail.”

Peirce added that she doesn’t believe the SEC to be positioned for either outcome, but that could change with time, and with more clarity as to the narrative surrounding the technology.

Why do most bitcoin investors want a Bitcoin ETF? Today, the most obvious reason is so the prices rise and investors can ride the high again like in December. We can bet regulators will want to have more nuanced reasons for an approval.

For now, investors need to take a step back and assess the risks involved. The SEC has been nothing but clear and the language used in each rejection is telling.

Back down, sit tight and be patient. The SEC has your best interest at heart.

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