In the Bitcoin story, the approval of a Bitcoin ETF is supposed to be a seminal event. An ETF is supposed to throw open the floodgates of retail investment into the cryptocurrency by allowing investors to profit from its price volatility by tracking it, instead of owning it directly.
But that narrative will have to wait.
The SEC on Wednesday rejected another Bitcoin ETF proposal, quashing hopes for the debut of an ETF linked to the cryptocurrency this year. But Bitwise, the San Francisco-based firm behind the proposal, is taking its lumps in stride.
“We look forward to continuing to productively engage with the SEC to resolve their remaining concerns, and intend to re-file as soon as appropriate,” stated Matthew Hougan, Director of Research at Bitwise, after the decision.
Bitwise Asset Management had one of the strongest Bitcoin ETF proposals to date. It constructed an elaborate case, arguing that the 10 cryptocurrency exchanges it intended to track for Bitcoin price constituted the “real” Bitcoin market. But the federal agency is not convinced and has sent Bitwise back to the drawing board.
The rest of the crypto industry and Bitcoin prices seem to be taking their cue from Bitwise.
Bitcoin price, which had earlier displayed volatile reactionary displacements to SEC orders, stayed on course. Instead the action shifted to futures platforms as Bakkt, the recently-launched Bitcoin futures platform by NYSE owner ICE, showed a sharp increase in trading volume immediately after the announcement. However, Bakkt volumes returned to their previous lows on Thursday morning.
Optimism despite rejection
Despite the rejection, industry experts were sanguine about future approval prospects for an ETF and its impact on the crypto ecosystem.
Nick Cowan, managing director and founder of the Gibraltar Stock Exchange Group, said the rejection was a stumbling block and not a setback. “We can take comfort in parallels with previously emerging industries; such as the gaming sector, where regulation had to play catch up with innovation,” he said, adding that this was still the “early phases” of digital assets becoming widely accepted among investors, institutional and retail.
“I think an ETF will ultimately come,” said Ryan Alfred, President at Digital Assets Data – a Fintech company focused on cryptoassets.
In his telling, the spike in volumes at Bakkt could be a harbinger for creation of a significant market and, subsequently, price discovery for Bitcoin within the United States. Most traders believe that price discovery for Bitcoin occurs at exchanges located abroad, such as Hong Kong-based BitMEX and Malta-based Binance, because they have relatively developed crypto markets.
“What I think the SEC would love to see is price discovery happening at Bakkt and that would likely give them comfort to allow an ETF to launch,” said Alfred.
Meanwhile, a “healthy mix of business models” within the crypto ecosystem will ensure that the absence of funds from an ETF does not sound a death knell for the industry, said Charles Phan—chief technology officer at Interdax—a crypto derivatives platform.
“The rejection of the Bitcoin ETF should not be a major setback for institutional uptake, provided the SEC eventually approves measures to recognize Bitcoin as a proper market,” he said.
Eventually, though, the importance of a Bitcoin ETF to the crypto ecosystem may be overstated. “There is no such thing as a single product that can make or break Bitcoin,” said Mati Greenspan, senior analyst with eToro, a trading platform for cryptocurrencies.
“The more financial products there are, the more helpful it is for Bitcoin. Regardless of the products, however, Bitcoin will continue to go forward and grow.”