No rush on bitcoin ETFs, experts say
In the long run, holding off on ETFs may help bitcoin grow further and faster.
There's been a lot of anticipation for bitcoin ETFs in recent weeks, with some forecasting SEC approval of bitcoin ETFs as the likely herald of consistent five-digit prices.
Hopes were dashed as the SEC rejected nine bitcoin ETFs in rapid succession, turning all down on the grounds that the financial institutions involved couldn't ensure the sanctity of bitcoin markets against price manipulation.
For some, it was a disappointment. Others call out ETFs as antithetical to the decentralised anti-bank principles of bitcoin and argue that even if it does make the price rise, it's akin to a deal with the devil.
And others take a more pragmatic approach, pointing out that the significance of ETFs has been overblown, and that in many ways, it's more advantageous for bitcoin as a whole to take it slow.
ETF to what end?
Are ETFs a means or an end? It's worth stopping and asking what exactly bitcoin ETFs are meant to accomplish and whether it's the best tool for the job, says Jordan Michaelides, Head of Institutional Investment at CoinJar.
Whether the goal is a higher price or wider adoption, ETFs aren't necessarily the way to go, he argues, because either way, bitcoin is better served by stability, which comes from use of bitcoin as a payment system rather than as a speculative digital commodity.
"Two million people using cryptocurrency daily in small amounts is far more beneficial for the development of the cryptocurrency industry than one or two institutions offering an ETF," Michaelides says. "If you compare these two options side by side, I would prefer the adoption of decentralised applications and cryptocurrency integrated services [such as bitcoin payment options] any day of the week over an ETF.
"The volume may be the same, but the packets or orders which constitute this volume are smaller and more evenly distributed.
"At the moment, the problem we have is volatility. This will continue until cryptocurrency begins to be treated as a payment mechanism rather than a hunk of gold. Volatility is hinged upon transaction volume – the more transaction volume there is, the less volatile the market will be. When people and businesses access and use cryptocurrency... we will begin to see the market mature and stabilise. Then we will see further investment on a retail and institutional level."
As long as bitcoin lives long enough, it will probably get ETFs eventually, runs one line of thinking. But there's really no rush, and in the long run, ETF delays let more alternative products hit the market.
One such product is the ICE-backed Bakkt platform, which is currently focused on physical bitcoin buying and selling as well as on concrete price discovery to hit the exact pain points mentioned in the SEC's ETF rejections. These kinds of solutions might be valuable market additions in their own right, while also paving the way for eventual ETFs.
But perhaps just as beneficially, the delay might also see more products enter the market in the meantime to serve customer demand in the absence of ETFs.
"Currently there are a lot of institutional investment options and whilst the end goal might be to get a retail ETF, it is quite clear that the SEC is not confident in the compliance frameworks of the current ETF proposals," Michaelides explains. "It is more likely that we continue to see the emergence of unregistered and registered funds before an ETF is approved and it is likely that the use of investor directed portfolio services (IDPS) platforms, like Macquarie Wrap, will become more common to provide these funds to retail investors. These platforms provide the infrastructure and compliance frameworks and is less direct to consumer than an ETF."
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.