The approval of a Bitcoin ETF by the US Securities and Exchange Commission (SEC) is currently considered the key to getting the bull back into the crypto market and flooding the market with fresh capital. The hype around the topic is huge, probably also irrationally large, since other fundamental values and adaptation seem to have no influence whatsoever on the market. CBOE President and CEO Chris Concannon has now stated in an interview with Bloomberg that he is cautiously optimistic that the SEC will meet his request for a Bitcoin ETF.
CBOE Global Markets Inc. could be the first company to receive approval for a Bitcoin ETF, but whether this actually happens remains to be seen. However, the Bitcoin ETF of CBOE and VanEck / SolidX is the most anticipated Bitcoin ETF among a variety of filings with the Securities and Exchange Commission (SEC).
The Bitcoin ETF from VanEck / SolidX is the only application that actually buys “physical” Bitcoin and therefore a big boost for the bitcoin / crypto market is expected.
In the first half of 2018, further applications were filed with the SEC. These include submissions from ProShares, Direxion and GraniteShares. In total, 10 Bitcoin ETF applications are on the table of SEC officials. The decision for two funds of ProShares will be made on 23.08.2018. The final date for two requested GraniteShares funds is scheduled for 15/09/2018. The four application funds of Direxion to be confirmed or rejected on 21.09.2018.
Chris Concannon, president and CEO of CBOE, said he was optimistic that the Securities and Exchange Commission would fulfil his request, but at the same time acknowledged that there were still challenges. He explained in the interview with Bloomberg:
If we separate ourselves from the problems to make them less worrisome, they will someday be satisfied with an ETF.
The SEC previously rejected an ETF proposal from Tyler and Cameron Winklevoss for concerns over manipulation in the unregulated cryptocurrency markets. Here, the low liquidity in the crypto currency market was a factor.
While the trading volume of Bitcoin futures is low as compared to contracts for commodities such as gold or oil, waiting for more liquidity to launch an ETF is a hens-egg problem. An ETF would increase futures trading. However, the SEC is reluctant to approve it without sufficient liquidity in the underlying futures.
Bitcoin futures contracts were introduced at a time when Bitcoin’s price was skyrocketing and liquidity was high. However, the trading volume of CBOE and CME bitcoin futures so far has not risen to the level many had anticipated since launch, possibly because of the bear market that has been ongoing since the beginning of the year.
The futures traded on regulated markets could also be the basis for an ETF, rather than physical bitcoin, according to Concannon. Concannon said the futures offer a more mature and healthier market. However, according to Concannon, futures-based ETFs raise the question of the right liquidity, because such a product has not yet been tested.
Since the underlying futures are first launched before an ETF, I believe you have a healthier, more mature market. The problem with a futures-based ETF is, what is the right level of liquidity? It has never been tested before.
Concannon also said that the first Bitcoin ETF was a market advantage. Once an ETF is approved, the capital inflow will continue based on the precedent set aside by other ETFs.
There is a big first-mover advantage in the ETF world. Once the fortune comes in, it tends to continue. We have seen this with other ETFs.
Finally, Concannon pointed to the frightening hype that currently exists:
It’s a bit shocking to me, the amount of attention this market gets compared to its size. The entire crypto market is one fifth of Apple.