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Bitcoin ETF approval may actually disappoint the bulls

The long-awaited greenlight from US regulators for a Bitcoin exchange-traded fund might turn into a sell-the-news event. 
Image: Paul Yeung/Bloomberg

The long-awaited greenlight from US regulators for a Bitcoin exchange-traded fund might turn into a sell-the-news event.

Building speculation that the Securities and Exchange Commission could approve a futures-backed product as soon as this week has been touted as a catalyst for Bitcoin’s torrent resurgence, with a deadline for a decision fast approaching. Crypto promoters such as Anthony Pompliano of Morgan Creek Digital Assets have seized upon the idea, tweeting that things could “get insane.”

Other industry veterans aren’t so sure. Given the ease of access to cryptocurrency markets relative to previous years, it’s unclear that a Bitcoin ETF launch would spark a flood of demand, according to Juthica Chou, head of over-the-counter options trading at Kraken Digital Asset Exchange. Individuals can already buy and sell digital assets on crypto exchanges worldwide and through more retail-oriented platforms such as PayPal and Square. Meanwhile, institutional investors have been able to gain crypto exposure through vehicles such as the Grayscale Bitcoin Trust — though plagued by persistent discounts — for years.

“Onboarding for individual investors, for retail, for institutions is already a lot better and safer and more approachable than let’s say crypto was back in 2017,” Chou said on Bloomberg’s “QuickTake Stock” streaming program. “An ETF will definitely be a positive, it’ll expand the breadth of the participants that can start buying Bitcoin and taking part in the ecosystem but it won’t be as impactful as it would have been years ago because we’re already seeing the institutional demand.”

Nevertheless, the optimism helped the world’s largest cryptocurrency soar to almost $58 000 this week for the first time since May. Bitcoin has surged by over 80% since breaking below $30,000 in late July. It was up 2.9% to $56 959 as of 2:39 p.m. in New York.

The speed of the rebound could be setting bulls up for disappointment, with Bitcoin briefly entering overbought territory on its 14-day relative strength index. Not to mention, the past few months are checkered with pop-and-fizzle happenings, from Coinbase Global Inc.’s direct listing in April to El Salvador’s rollout of Bitcoin as legal tender in September.

For Stephane Ouellette, chief executive officer of the crypto-focused platform FRNT Financial Inc., ETF approval would undoubtedly be good news but would be far from a “gamechanger” at this point.

“Ultimately, I’m not sure this incrementally adds much access for investors who are struggling to access the space,” Ouellette said. “That said, were an ETF to be approved every US-based trading platform would conceivably offer access to Bitcoin exposure where only some do now.”

It’s been a long road to ETF advocates, with Cameron and Tyler Winklevoss, the twins best known for their part in the history of Facebook Inc., filing the first application for a Bitcoin ETF in 2013. In August, SEC Chair Gary Gensler signaled that policy makers may be more open to an ETF if it were based around futures rather than the cryptocurrency itself, setting the stage for a likely decision based on a deadline for approval or rejection of current futures-based ETF applications.

Even if approved, a futures-backed fund could limit the positive impact, according to Bloomberg Intelligence’s Eric Balchunas. Futures-linked ETFs are “not ideal” given that the ETF has to roll forward the futures contracts, which eats into performance, he said.

“Investors generally don’t like derivatives, and a lot of advisors don’t like derivatives,” Balchunas said on Bloomberg’s “QuickTake Stock” program. “A physically backed ETF would be a major catalyst. I see this as a very minor catalyst.”

© 2021 Bloomberg

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