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Lack of Bitcoin-Based ETFs Challenges Cryptocurrency Investment Markets

Melanie Kramer | Jul 15, 2018 | 02:00

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Lack of Bitcoin-Based ETFs Challenges Cryptocurrency Investment Markets

Melanie Kramer | Jul 15, 2018 | 02:00


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With the decision on whether a cryptocurrency-based exchange traded fund (ETF) will ever launch in the U.S still sitting firmly with the Securities and Exchange Commission (SEC), experts continue to speculate on the market and its potential. 


Managed investment funds based on cryptocurrencies may offer a less risky investment route for concerned investors, or a more familiar route for traditional, institutional investors.

Though CBOE and CME Group launched bitcoin-based futures in December 2017, and the SEC has approved seven blockchain-based ETFs so far in 2018, the bitcoin or cryptocurrency-based ETF is still the holy grail of the market. Some believe an outstanding bitcoin-based ETF application could be approved as soon as next month.

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Difficult to Value

A bitcoin-based ETF would be a major coup for the cryptocurrency space. The SEC is hesitant, however, citing concerns of price volatility and the difficulty in actually setting a market price to base fund payouts upon.

Matthew Hougan, global head of research at Bitwise Asset Management, claims that judging what the right prices are for cryptocurrencies — aside from fund premiums — is difficult, noting:

The crypto ecosystem hasn’t evolved an agreed-upon framework to value crypto.

Hougan believes that cryptocurrencies could become widespread alternatives to money, like gold, putting a floor under prices. “It’s entirely feasible that a new store of value could emerge in the world,” said Hougan, “I don’t think that concept began and ended with gold.”

Hard to Gain Exposure

One existing fund is performing well. The Bitcoin Investment Trust has seen an average trading price 56 percent above the portfolio’s asset value according to Morningstar, but it has little in the way of competition. Its performance could see a sharp decline if bitcoin-based ETFs bring choice to the market.

“The challenge with cryptocurrency-oriented investing is it’s hard to gain exposure, as there are no U.S listed ETF.s,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA Investment Research. “When the supply to gain exposure to Bitcoin grows via ETF choices and better meets demand, the premium will narrow.”

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Blockchain Versus Bitcoin

Other experts think that investors are better placed to look towards blockchain technology-based investments. Joe Davis, head of Vanguard’s Investment Strategy Group, is one — stating that he was “enthusiastic” about blockchain but, for bitcoin, there is a “decent probability that its price goes to zero.”

Hougan recommends caution but believes Bitcoin has potential, predicting that adding bitcoin to a 60 percent stock and 40 percent bond portfolio could improve its performance.

Bitcoin-based ETFs could be one of a number of market signals institutional investors are waiting for to truly enter the cryptocurrency market and fuel its next boom. 

Do you think the launch of Bitcoin-based ETFs will make a difference to Bitcoin’s price? Are blockchain-based ETFs better? Let us know your thoughts in the comments below! 


Images courtesy of Shutterstock, Bitcoinist archives.


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