Bitcoin ETF v Gold ETF – The Lessons

ETF’s provide people with no fear of counterparty risk an easy to access platform for a range of hard assets.  

It was another strong 24 hours for Bitcoin with the price up another 7.4% in that period and the price surging through the US$8,000 mark to sit at US$8,300 at the time of writing off a solid $7.1b 24 hour volume. 

Part of the reasoning may be the growing expectations of the U.S. Securities and Exchange Commission (SEC) approving a Bitcoin Exchange Traded Fund (ETF) as well as other crypto ETF products.  There is also growing expectations that we will see an Ethereum (ETH) futures market approved as well now that the SEC confirmed it does not view it as a security as we reported here.

The ICO Journal reported last week that 2 sources within SEC and U.S. Commodity Futures Trading Commission (CFTC) confirmed it is looking very likely the ETF will be approved by September.  This was reinforced yesterday as the SEC announced it was postponing the announcement of the Direxion BTC ETF to 21 September:

“The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change…..Accordingly, the Commission [...] designates September 21, 2018, as the date by which the Commission shall either approve or disapprove the proposed rule change”

It’s not clear of course if this news is at all responsible for the latest BTC rally.  There is also a flipside to the ETF approval and that is both the SEC and CFTC revealing their first substantive regulations around the cryptocurrency and ICO space alongside the ETF announcement.  Having a proper regulatory framework was always the hurdle for introducing ETF’s and as we’ve maintained time and again, if you are investing in robust, ‘real’ cryptocurrencies/tokens there should be little to fear from proper regulation that addresses the headwinds for crypto of scam coins and schemes.  Who knows, the other headwind of banks being obstructive in the space may be addressed with better regulation as well.

When the first gold ETF was launched in 2003 gold was at US$332/oz.  That heralded the beginning of an epic 8 year bull run peaking at US1900/oz, a 472% gain.  The first silver ETF was launched in 2006 and saw the price go from $12 to $48 in only 5 years, a 300% gain.

The access that ETF’s provide for financial market players not concerned about counterparty risk can’t be underestimated.  That it was instrumental, alongside bullish macro economic factors of course, in fuelling that gold and silver market rally can’t be ignored either.  The thing is, both gold and silver were and are more easily ‘understood’ and easy to access the physical, no counterparty risk product.  Bitcoin, on the other hand, is still poorly understood, perceived harder to access securely in large transactions (except at Ainslie Wealth of course!!) and so you could well imagine an ETF would be supremely attractive as an investment vehicle into this new asset class.

It would therefore seem that we should not be underestimating the transformative potential of this September announcement.