A Bitcoin ETF could be approved by the SEC as early as 16th August 2018, with many predicting an approval could spark the biggest bitcoin bull run ever…
The cryptocurrency mania of late 2017 really started as a result of rumours surrounding Bitcoin futures contracts (which are quite different to ETF’s), where the price exploded from $3.5k in Sepetember to $10,000 by the end of the year.
Sure enough, the CME stepped in on the 1st of December to announce that they were launching Bitcoin futures in mid-December. Bitcoin finally topped out at nearly $20,000 the day that CME futures were launched. Crypto mania was quickly replaced by a crypto winter.
Bitcoin’s decline was nearly as fast as its rise and we have been in a seven-month bear market ever since.
Fast forward to now…
News publications and social media are all starting to get excited right now and it’s all because of one impending decision – The possibility that a Bitcoin ETF might finally be approved, providing a dramatically easier way for investors to gain exposure to Bitcoin.
What Is An ETF?
ETF is the shorthand for an ‘Exchange Traded Fund’. These financial products track the performance of commodity, index or basket of assets. ETF’s are traded like stocks and prices fluctuate throughout the trading day.
When it comes to Bitcoin, ETF’s essentially provides an easy way to gain exposure to Bitcoin. They also have the added benefit that the owner doesn’t need to worry aboutBitcoin storage or security. This is instead the responsibility of the ETF provider.
Bitcoin ETF Key Facts:
- Regulatory body: SEC (USA)
- The earliest date for a decision:16th Aug 2018.
- Extensions:SEC has the right to defer a decision for up to 90 days.
- Application made by:CBOE Global Markets
- Standards:ETF proposed to hold 25 Bitcoins per share. Partial shares cannot be held in an ETF, meaning the minimum investment would be around $185k with bitcoin prices at $8.4k. This means the ETF is geared for use by institutions and high-net-worth individuals. It also makes reasonable provisions for the protection of average retail investors.
- Insurance:Proposal includes provisions for $25 million in primary coverage and additional coverage of up to $100 million. Provisions for further coverage extensions can be made.
- Support:The ETF is widely supported by the cryptocurrency community and 250 comments (mostly in support of approval) have been posted on the official SEC website.
- Backed By Actual Bitcoin:The proposed ETF is to be backed by actual Bitcoin. This means that if there are fund inflows of $100 bn, then $100 bn worth of bitcoin must be purchased to fully back the ETF.
The road to a Bitcoin ETF has been a long and hard one. Indeed, the famous Winklevoss twins proposed a Bitcoin Trust, that looked and smelled like an ETF all the way back in 2013. Over the last five years, numerous attempts have been made to get a Bitcoin ETF approved and they have all failed. Why are people so optimistic that the Bitcoin ETF will be approved this time around?
Most commentators believe that the latest ETF application will be approved due to how the ETF is structured. Average retail investors simply don’t have nearly $200k lying around to invest in Bitcoin. This means that the SEC’s main concern of protecting retail investors is satisfied.
Both cryptocurrency commentators and the CBOE have both concluded that the latest proposal meets all of SEC’s ETF approval requirements. This, coupled with a maturing cryptocurrency market, has led to widespread optimism around the approval of the ETF.
Would a Bitcoin ETF Drive The Price Higher?
It’s not too much of a secret that many financial institutions and high-net-worth individuals are interested in investing in cryptocurrencies.
Financial giants with trillions of client funds under management such as Blackrock, J.P.Morgan, and Fidelity have all expressed interest in cryptocurrencies in 2018.
That’s not all; a report made by the consulting firm Capgemini revealed that 29% of millionaires had expressed a high interest in cryptocurrency investment. Almost 27% of millionaires surveyed reported having a general interest in digital assets.
However, this type of money is not the kind to open up a Coinbase account and store their funds in a Bitcoin wallet like everyone else.
Investors looking at investing millions, tens of millions or even billions, are the types of people who want assurances that their funds will be safe and the investment to be easy to make. In fact, many fund management firms are simply not allowed to directly own cryptocurrency right now.
ETF’s are ideal for this sort of investor to get exposure to Bitcoin. Not only is the Bitcoin going to be insured, the investor does not have to devise a crazy secure way of storing their digital assets. Also, fund managers are allowed to hold ETFs in their funds, whereas opening up a Coinbase account to invest client funds would not be allowed.
The main thesis behind a Bitcoin ETF driving Bitcoin prices higher is based on it allowing institutional and money from high net worth individuals to enter the cryptocurrency markets. The fact that an ETF would be backed by actual Bitcoins, should mean that the laws of demand and supply kick in, meaning that prices will rise with this added demand.
Bitcoin – Striking Similarities to Gold
Bitcoin is commonly viewed as a form of digital gold and both gold and Bitcoin do share a lot of similar properties. This means that interesting insights into Bitcoin can be gained by looking at the impact that the introduction of a gold ETF had on the gold price.
So, what happened when the gold ETF was finally launched?
Well, it kick-started the biggest bull run in gold’s history. Prices rose from just $331.60 per ounce to a high of $1,917.90. That’s an incredible 478% increase in price after the gold ETF was launched.
The interesting thing about the history of gold and Bitcoin is that both got futures contracts before an ETF was launched. In both cases, there was a big increase in price before the futures markets opened and there was a significant fall in the price of both assets when futures trading actually began.
Market Speed
The thing to note about both the charts is that Bitcoin markets simply move significantly faster than gold. One way of looking at this is market cycles. Over the last 45 years, the gold market has seen seven prolonged bear markets that have led to a 30%+ fall in the price of gold. The longest negative correction period experienced by gold was around 6 years between 1988 and 1993. That’s an exceptionally long time.
In fact, when we look at the seven major corrections in the gold market, the average bear market period comes out at just around three years.
With Bitcoin, on the other hand, the longest ever bear market was just 410 days. Even the Bitcoin bear market from 16th December 2017 till the time of writing, is just 218 days.
The length of Bitcoin bear markets can be seen in the table below. It should be noted that this table excludes the current Bitcoin bear market, as we do not know when it may end.
It can be seen from the chart above that Bitcoin bear markets are significantly shorter than gold bear markets. But by how much? Well, if we take the current bear market as being 218 days long (16th December 2017 to 22nd July), then we get an average bear market length of 128.6 days.
When we consider that the average length of a bear market in gold is around 3 years or about 1095 days, we can conclude that the Bitcoin market is currently moving about ten times as fast as the gold market. What could this mean for a Bitcoin ETF and a Bitcoin price increase? Well, it took 3070 days from when the gold ETF was launched on 28th March 2003 to achieve an all-time high price of $1,917.90 on 23rd August 2011.
This means that once the Bitcoin ETF is launched if the Bitcoin market follows a similar pattern to gold, we could see the Bitcoin price hitting an all-time high ten times as fast. That could mean a topping in price around 300 days after the Bitcoin ETF went live.
Crypto Experts: What Price Do They Think Bitcoin Can Hit In 2018?
Many cryptocurrency experts are making wild predictions about the future price of Bitcoin. The interesting thing is that some of these experts, like popular YouTuber Nicholas Merten, have been saying since the beginning of the year is that 2018 is the year we will see a Bitcoin ETF. Obviously, many of these experts are assuming the Bitcoin ETF does get approved this year. But just how high do they think Bitcoin could go by the end of 2018?
- 2018 Prediction:If a logarithmic scale is used, McAfee’s 2020 prediction puts the Bitcoin price at $29.3k by the end of 2018.
Arthur Hayes
- Occupation:CEO of Bitmex – the world’s largest crypto futures exchange.
- 2018 Prediction:A fall to $5,000 and a rally to $50,000.
Thomas Lee
- Occupation:CEO of the Fundstrat Global research company & Ex-Chief at J.P.Morgan.
- 2018 Prediction:$25,000
So we can see that the general consensus among cryptocurrency experts is that Bitcoin can hit around $25,000 to $50,000 by the end of 2018. With Bitcoin prices currently at around $7,500, this means that experts are predicting a Bitcoin price increase of between 233% to 566% by the end of 2018.
The Bitcoin Market Still Has A Lot Of Room To Grow
It may seem that the Bitcoin market is already enormous. However, did you know that the gold market is valued at around $7.07 trillion and is around 55 times bigger than Bitcoin?
The interesting thing about Bitcoin and gold is that not only do these assets share similar properties but that Bitcoin has a range of advantageous over gold too.
Summary / Cliff Notes
For those looking for a neat summary of this article, here’s the key takeaway points:
Final Thoughts
Will ETF history repeat itself and result in a surge in the price of Bitcoin? Almost every cryptocurrency expert seems to believe that it will. However, it is far from certain that SEC will approve the latest Bitcoin ETF application.
Indeed, the Bitcoin ETF thesis could well become a self-fulfilling prophecy with the
levels of hype and optimism surrounding a Bitcoin ETF.
The truth is that the interest in this form of digital gold only increases as its price rises. In turn, positive price action is likely to attract institutional money and further upward price momentum. Further highs can be reached by retail investors following the institutional money too.
No one knows what the future holds for the price of Bitcoin. However, one thing is for sure. Bitcoin is at a critical crossroads right now and it all hinges on SEC approving the current Bitcoin ETF application. Maybe, just maybe, the biggest bull run in the history of Bitcoin is about to begin. However, do remember that we are currently in a 218-day long bear market. If the Bitcoin ETF application is turned down, don’t be surprised if we break the last bear market record set in 2013 to 2015.
Tom is a cryptocurrency investor from Edinburgh, United Kingdom. He believes in long-term projects rather than any short term gains, and is a strong advocate of the future application of blockchain technology.
