We’ve all heard of the SEC’s decision regarding the proposals for the Bitcoin ETF’s. Now, if you’re new to trading you probably do not really understand what an ETF is or why it is so important. Don’t worry, we’re going to explain it all to you.
What is an ETF
First things first, what in the world is an ETF?
ETF stands for ‘Exchange Traded Fund’. You can compare them to shares!
The big difference between ETF’s and shares is that a share is part of a business whereas an ETF is an investment fund, traded on an exchange. Just like what the name suggests.
ETF’s can invest in whatever they like : a portfolio of shares, commodities, bonds, etc. They can be a mixture of all those assets. When you buy an ETF, you are basically buying a share of that ETF.
There are no hidden fees, no paperwork, and there is no minimum investment required.
Why does it matter
A Bitcoin ETF would make it so people can invest into Bitcoin without needing to buy Bitcoin.
This is a big deal! Many investors are interested in investing in Bitcoin, but they do not want to deal with exchanges or wallets.
For one, the cryptomarket is lightly regulated so they generally do not trust cryptocurrency exchanges with their funds.
However, they understand ETF’s and have a trustworthy broker. Being able to invest in Bitcoin without much of the security risk will be a huge deal for them.
As such, a Bitcoin ETF can bring in a lot of new money to the cryptocurrency market. Whilst some people argue that cryptocurrencies are more than just an investment, more money coming in to the market is never a bad thing. However, this debate is a whole other story.
As traders, we definitely see the benefits of a Bitcoin ETF.
On August 22nd, 2018, SEC staff rejected all Bitcoin ETF proposals stating that this rejection doesn’t have anything to do with whether Bitcoin and blockchain technology have utility or value as an innovation or an investment.
They found that none of the exchanges could satisfactorily demonstrate their ability to prevent fraudulent and manipulative acts and practices.
Of course, this is no surprise. The cryptocurrency market has been manipulated before.
Insider trading is a big issue and will continue to be an issue as long as the market is unregulated.
However, many cryptocurrency supporters do not want any regulation. Just like the investment vs currency debate, this issue is worthy of its own article.
It seems this saga isn’t over.
On August 23rd letters were posted showing that the SEC commissioners will review this decision.
If you’re wondering how this all works, here’s a quick explanation:
The SEC commission delegates tasks to their staff. When staff makes a decision, it acts as though the commission made that decision. In some cases the commission will review that decision, which is what is happening now.
There has been no word on when this review will take place.
What impact did this decision have on Bitcoin?
Since Bitcoin (and the cryptocurrency market in general) is easily influenced by news, people speculated that if these proposals were rejected prices would drop.
We’ve had plenty of situations where news caused prices to go up, as well as drop heavily.
Surprisingly, it seems the decision did not have a big effect!
There was a slight drop, but that drop can be seen as a correction. Price went up before the decision was made, in anticipation of a favourable decision. Once the decision was announced, price went back to what it was before the slight increase.
The fact that price didn’t go hurtling down after the decision was made public could mean that the cryptocurrency market is evolving and will no longer be influenced by every piece of news.
With the announcement that the SEC commission is reviewing this decision, it seems unlikely that prices will drop as a result from this decision.