Day 22 — BTC Days of Future Past (The Launch of BTC ETF?!)

Before we talk about the ETF, let’s first take a look at the market today.

Are you sick of this? I definitely am.

Just when things were looking slightly better with BTC jumping back to 6800 over the past weekend… BOOM! We are back in the red. Welcome to the life of a crypto trader. Attached above is a snapshot of how the whole crypto-market have fared in the past seven days as of July 13, 3:00 am GMT. Yeah.. absolutely brutal.

Nonetheless, there are certainly a few events that happened throughout the week that might be able to explain the crash. Here’s the bad news:

  1. Kenneth Rogoff (Former chief economist at the International Monetary Fund and Harvard University professor), Nouriel Roubini (NYU economist)and Joseph Stiglitz (Nobel Prize-winning economist and professor at Columbia University) — shared their gloom and doom bitcoin forecasts.
  2. Yet Another Security Breach. A 13million hack at Israel-based decentralized exchange Bancor.

Sorry, but I am not going in depth on these news because I want to share with you the research that I did today, on impact of the launch of ETF and Futures product on the price of BTC. Are you ready? Let’s go!

We want to first look at the price action last year when BTC’s futures were announced and launched, and also cross-reference to the safety-haven asset Gold as a comparable asset to BTC to understand how the launching of a ETF product can affect the underlying assets’ price.

BTC’s Futures and ETF

CME announced the launch of bitcoin futures on Oct.31, and on Dec.1 2017, announced that the contract would be available for trading on Dec.18. Bitcoin was trading at 6.1k on Oct 31, and went up to 10.9k (an upside of 78.68%) on Dec.1 and finally to 19k (a total upside of 211%) on 18th of Dec 2017 before sliding back down.

Now that we understand how BTC futures has affected the price action of BTC, let’s take a look at Gold which went through both the launch of a future and ETF product.

Gold futures were launched on 31st Dec 1974 and its ETF was launched on Nov. 18, 2004. Let’s now take a look at how did the price of gold do during these launches.

There seems to be not much of an upside when gold futures were launched in 1974 but we definitely can observe a huge potential upward pressure on the price of Gold when the ETF product was launched in 2004. Although some might argue that it is difficult to isolate the increase in gold prices to the launch of the ETF product alone, especially if it was more than 14 years ago, it certainly helps us to understand how the price of the underlying commodity asset behave when its ETF is launched. So why is ETF a good thing for the price of the underlying asset? There are a few reasons:

  1. Liquidity — Because you can trade ETFs like a stock, with the launch of a ETF product, more traders and investors will be more willing to come into the space in order for them to take advantage of the price fluctuations and this gives more liquidity and opportunity for any existing investors that are already in the market.
  2. A form of gateway — Because ETF offer a diverse assortment of asset and they often have lower fees. This will attract more traction into trading the underlying asset market. (which is incredibly important for a new asset class like BTC). ETF can also invite more regulatory framework which can legitimise new asset class which again, is good for attracting both institutional and retail investors.

In conclusion, by observing the price of gold during the launch of its futures and ETF products, it is clear that the upside pressure on prices due to an ETF launch is much stronger compared to the futures’ launch. This keeps BTC investors very bullish and optimistic on the possible ETF launch of BTC. (Especially since the launch of BTC futures already had a 200% increment)

On top of this, there is one more factor hat will drive up the price of BTC even more. This is related to the SEC application that states that the Bitcoin’s ETF will be physically backed by secure holdings of bitcoin in the VanEck SolidX Bitcoin Trust. To maintain liquidity and sufficient reserves, the Trust will trade bitcoin on over-the-counter (OTC) exchanges both domestically and internationally. This is vastly different from the ETF/paper gold concept where gold certificates, derivatives etc. are not backed by real, physical metal. We believe that this will create and increase the genuine demand for BTC which will definitely increase the price equilibrium for the asset.

How likely is this going to happen? -We think it is very likely…

Whether this application will align with the SEC’s proposal to alleviate ETF processes and make its way to global markets has yet to be revealed. But on June 26, we did see a proposal revealed by the SEC that aim to ease the approval process and ‘modernize’ the regulatory framework for exchange-traded funds’. Moreover, the impending classification of Ethereal as non-securities is indicative of a maturing cryptocurrency sector, making its way into legitimisation and therefore we believe that this event is very likely to happen and if approved, Bitcoin ETFs could be available for trading in the first quarter of 2019 which will lead us right into the next bull run.

Let me know what you think!

Have a great weekend ahead!! Till then:)

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