What hinders pure Bitcoin ETF?

There are rumors that regulators will soon accept pure Bitcoin (Bitcoin) Supported exchange-traded funds, it is very important to understand the history of some of the first crypto-based ETFs that have recently been approved by government agencies.

U.S. Securities and Exchange Commission Approved an ETF adjacent to Bitcoin, Giving investors the opportunity to access Bitcoin through the stock market, and recent acceptance Is ProShares Bitcoin Strategy ETFTrading began on October 19th on the New York Stock Exchange Arca.

It is worth noting that the above-mentioned exchange-traded funds are not purely encrypted ETFs, and only track company stocks or futures contracts related to encryption.

The U.S. Securities and Exchange Commission has not yet approved a pure crypto ETF, Unlike Canada in spring when The regulator approved three Ether (Ethereum) ETFs come from three different companies: Purpose Investments, Evolve ETF and CI Global Asset Management.

Although regulators have begun to accept the good news of encrypted ETFs, many questions still remain, why are there so many challenges in listing. This fall, people have a lot of expectations and speculation about what ETFs are and how they promote or hinder the entire crypto market. The following are the issues, challenges, and possible future of crypto-backed exchange-traded funds.

Regulatory mismatch

Generally speaking, exchange-traded funds are investment funds that track a basket of assets in the stock market and can be traded like ordinary stocks.

Although almost all assets have ETFs, the problem with cryptocurrencies is that there is still uncertainty among regulators How to define Bitcoin and other cryptocurrencies, And how to protect consumers from risk exposure. As purely encrypted ETFs begin to appear in the stock market, these issues may pose challenges, as unclear regulations may cause regulatory problems in various national institutions and around the world.

For example, every financial regulatory agency in the United States has Different-sometimes conflicting-views Regarding what cryptocurrency is, especially in terms of taxation and transactions.

In 2020, the major French financial regulator Autorite des Marches Financiers (AMF) responds to the guidance of the European Commission Regarding the so-called “encrypted assets”, it is too early to point out that it is too early to clearly define them.spokesman Told Cointelegraph at the time:

“AMF believes that it may be too early to accurately classify crypto assets at this stage. Only after receiving reliable feedback, we can judge the precise classification (such as’utility tokens’,’security tokens’, and’payment tokens’). “Coins”, “stable coins”, etc.).”

French fund manager Melanion An ETF adjacent to Bitcoin was recently approved, I hope that its stock can track the price of Bitcoin, first in the French market, and soon in many other markets in Europe.

Cointelegraph contacted Jad Comair, the founder and chief information officer of Melanion. He mentioned that because it is impossible for the European market to directly expose investors to Bitcoin through the collective investment undertakings in transferable securities (UCITS) framework-this is “99% of European listings All ETFs use this format”-the company must become smart and create “a unique index construction method in the world that measures the company’s exposure to Bitcoin.”

This means that the ETF tracks the stocks of companies that invest in Bitcoin, mine Bitcoin, or otherwise participate in the crypto market, but it does not include Bitcoin itself. “The index selects companies with the most exposure to Bitcoin and weighs them based on their historical correlation (beta) with Bitcoin’s performance,” Comair said.

Fear and risk?

Highly volatile assets such as cryptocurrencies may still be at risk, especially futures-backed Bitcoin ETFs.

Bitcoin futures ETFs track a basket of futures contracts, not Bitcoin itself. Since the futures price of Bitcoin may be different from the spot price, ETFs may not be able to accurately track the price of Bitcoin, which exposes ETF holders to certain risks.

“Contango” means that the futures price is higher than the spot price, and “backwardation” means that the futures price is lower than the spot price.

related: Cryptocurrency breaks ETF barriers on Wall Street: a watershed or a stopgap?

In addition, this high volatility means that regulators can Take steps to implement more investor protection, Especially after seeing the jump that the crypto market has experienced in the past six months. This begs a question:

Can exchange-traded funds help mitigate the risks posed by volatility?

With the re-acceptance and implementation of crypto futures ETFs- Latest model Now traded on the New York Stock Exchange-this may “open the door to’real’ capital intervention, because for the time being, existing Bitcoin products are eligible for small investments, and Bitcoin itself is very complicated to put into routine Portfolio,” Comair said. More serious market exposure, even through companies that invest in Bitcoin, may push the market toward explosiveness and/or stability.

As the stock market learns how to interact with the crypto market, changes in the crypto market may drive the acceptance of more ETFs – and vice versa. With the emergence of ETFs tracking company investments in crypto and futures-based crypto ETFs, will this lead to wider adoption of crypto investments as a whole?