There’s light at the end of the tunnel for Bitcoin. Earlier this week the Chicago Board Options Exchange’s (CBOE) filed to list the VanEck and SolidX (companies’) collaborated Bitcoin ETF called “Bitcoin Trust.” The approval will mean Bitcoin will be listed, tracked, and traded on stock exchanges. The ramifications for the price of Bitcoin and it’s derivatives is beyond the most bullish scenario. This is because a true Bitcoin ETF will open the door for high net-worth investors and a plethora of new financial instruments. Neverhteless, as promising as a new Bitcoin security assest sound, there is still a few huge catches: Regulation, Stability, and Insider trading.
The reason a Bitcoin ETF is even considered possible today is due to the SEC’s announcement last month that Ethereum ‘is Not a security’. This left an open ended question of whether Bitcoin and its related markets must follow SEC’s rules. Therefore, the logical follow up step is to allow for Bitcoin to be traded in it’s current form. The lowering of this barrier gives investors confidence that Bitcoin is at the very least being monitored and no longer considered a instrument dedicated solely for illegal activities. In addition, the IRS also announced the formation of international partnerships to combat tax evasion in the crypto market. Once again, this provides for some security that in the future the crypto market will be more regulated.
However, despite all the premature celebration, the white elephant in the room remains Bitcoin’s notorious price volatility. Unless this issue is addressed, the growth of the entire market represent a huge risk. And risk is not a welcome word when potential trillions of dollars are waiting to enter the market. So far Thether is the only stable coin in the market with any track history. Many projects like “Maker DAO” and “Basis” claim to deliver but their implementation is years away, if at all.
And unless stability is achieved, major Bitcoin investment funds will be speculative at best. Pinning trillions of dollars on fabricated values and expectations that may or may not become true. And by that time, Bitcoin will be too big too fail, leaving anyone with money in these investments funds holding a bag of literal digital dust. And with no recourse but to believe that someday it will work.
Also, cryptocurrencies do not play by the same rules as stocks. They are free market with no protections or fail-safe tools. Bitcoin is more akin to a game of No-Limit poker where almost everything goes. For example, Cryptocurrencies are vulnerable to insider trading; companies issue press releases to raise the price, then sell it. Also, unlike regular stocks, Cryptocurrencies companies are allowed to buy their own coins. And then there are computer hacks and price manipulation. The SEC declined to grant a similar filing request by the Winklevoss brother’s on March 2017, most likely due to the same concerns that still exist today.
In order to mitigate the risks, Coinbase the largest exchange and the Switzerland Stock Exchange have established custodial funds for institutional investors. Promoting greater digital security and conservative management, they represent the best hope to safeguard the innumerable amount of money they will potentially be entrusted with. However, these are only two of the hundreds of crypto investment funds already in existance, with more on the way. The creation of ETFs will open the floodgates to hundreds of cryptocurrency futures as well as shorting markets. The amount of money generated will surely catapult Bitcoin to unimaginable prices but will equally put the entire world into unprecedented risk.