We are proud to announce the launch of our weekly newsletter ‘Crypto Wrap-Up’, covering the latest crypto-related news, market commentary, and a weekly story about a specific blockchain or crypto-related topic.
A new issue of the newsletter, which is a collaboration between Genesis Mining’s Blockchain Consulting and DQR’s research division, goes out every Friday, so make sure you subscribe to it by clicking on the link below.
This is one of our first steps in helping people to learn, understand, and use cryptocurrencies. Knowledge is everything, so take a look at our first ‘Topic of the week’ from the inaugural issue of ‘Crypto Wrap-Up’.
What’s next for Bitcoin? — Part 1
The Bitcoin community recently recollected Satoshi Nakamoto’s seminal whitepaper on the occasion of its tenth anniversary. On 31 October 2008, the pseudonymous inventor(s) of Bitcoin first introduced a clever way to combine public key cryptography, peer-to-peer network, proof-of-work algorithm, and blockchain (although the term blockchain was not specifically used in it) to achieve distributed consensus. Both the underlying technology and its digital token have since come a long way. Ten years on, Bitcoin has not only evolved from its original version but has also weathered countless attacks and defied hundreds of obituaries. In the meantime, both the network and its governance have become significantly more resilient and robust, while the cryptocurrency has experienced an unprecedented price rally compared to other global asset classes. In the coming years, Bitcoin is likely to become further established amid increasing trust and confidence in the network — in part through ongoing innovation and increased adoption by institutional investors (to name just a few) — and it will continue to undergo significant changes.
In this series, we shed some light on where Bitcoin might be headed while focusing on the state of institutional exposure, the potential creation of a Bitcoin exchange-traded fund (ETF), the comprehensive technological project pipeline and various concerns regarding current developments surrounding Bitcoin. In the first part, we provide a recap of recent ETF developments and examine the likelihood of approval by the US Securities and Exchange Commission (SEC) in the coming months.
More and more institutional players are entering the market, and the flow of new money into the segment could fundamentally change it. The long-awaited Bitcoin ETF could therefore trigger the next bull run (given the influx of new capital) by making Bitcoin accessible as an investment vehicle to a broad investor base. Without a doubt, all eyes will be on the SEC next month. After rejecting nine futures-based ETFs by ProShares, GraniteShares and Direxion in September, the SEC is now reviewing the only ETF application left (the rejections of futures-based ETFs are also under review by the SEC, but no longer have an official deadline). The VanEck/SolidX commodity-backed offering, whose deadline is 29 Dec., with a potential 60-day delay to a final deadline on 27 Feb., is probably the most advanced product so far. Unlike the futures-based ETFs, the VanEck/SolidX ETF would buy and hold actual bitcoin instead of tracking its price through derivatives.
The benefits of a Bitcoin ETF are unambiguous. Apart from its transparency and liquidity, it would offer investors a secure way to buy and sell bitcoin while also benefiting from the regulatory protections normally afforded to ETFs, such as insurance and institutional-grade custody. A look at why the SEC rejected all previous Bitcoin ETFs does not give much reason to be optimistic, however. Ultimately, its decision came down to the risk of market manipulation and fraud — this is akin to the SEC’s denial of the Winklevoss ETF appeal in July. The SEC found, among other things, that Bitcoin markets are not inherently resistant to manipulation and would essentially require exchanges to put into place surveillance-sharing agreements with a regulated market of significant size, that is, spot exchanges rather than regulated futures exchanges, such as CBOE and CME.
Bitcoin ETF proposals filed with the SEC
While the VanEck/SolidX fund addressed many previous concerns, it is unclear whether these steps will be sufficient to mitigate the above-mentioned issues, particularly regarding surveillance-sharing agreements and exchange practices. Whether the SEC’s stance may shift as a result of the recent appointment of Elad L. Roisman is debatable. Hester Peirce, one of the five SEC commissioners, has notoriously viewed Bitcoin ETFs favourably. As outlined by KobreKim LLP lawyer Jake Chervinsky in a podcast, the Bitcoin ETF essentially constitutes a chicken-and-egg problem since the lack of current market liquidity makes the space prone to manipulation, thus preventing the establishment of an ETF. This is a problem that could be solved by institutional investors, whose willingness to enter the market, in turn, would depend on its having adequate liquidity (i.e. the existence of ETFs). Interestingly, the last asset for which an ETF was first approved dates back to the futures-based copper ETF in 2007. Its approval process was spread along an arduous three-year path. In our view, the lack of ETF progress has become a non-event, given that this long and winding road appears to be priced in; the lack of ETF progress or SEC rejection announcements no longer trigger sharp declines in the price of Bitcoin.
