What is an ETF?
An Exchange Traded Fund ETF is an old world banking financial product that has the following key characteristics.
Closed ended – This means there is a limited number of shares and they cannot be created or cancelled too easily. This is also means that the value of their underlying investment will always trade at a premium or discount to the underlying asset price depending on the demand for the fixed amount of shares in the ETF.
Traded on a stock exchange – An ETF should have plenty of liquidity and is easy to buy and sell because it is listed on a stock exchange.
Low cost – In theory most ETFs should have lower costs than other managed fund types as they often just track indexes or the price of an underlying asset. This means you don’t have to include the cost of highly paid bankers to trade in and out of stocks or assets actively.
Incorporated Legal Entity – ETFs are often legal entities with a corporate structure and directors etc. This can be a burden to flexibility in switching investment strategies or increasing share capital as it would require a majority board approval to amend the companies objectives.
Bitcoin is far better than an ETF
As you can see from the above characteristics, Bitcoin and it’s incorporated technology is already much better than an ETF itself. Therefore any ETF approval, rejection or delay by the SEC will only cause short term volatility to the Bitcoin Price in USD. The overall price of Bitcoin will still continue to rise unimpeded over the long term (certain assumptions implied) because of its key characteristics of scarcity and security. Bitcoin is a massive leap forward from the old inefficient banking system. An ETF approval will be completely insignificant in Bitcoin’s continual rise as key asset to hold throughout the globe for many years to come. The ETF decision will be only a blip in the overall Bitcoin trajectory and story as a world changing technology.
Indeed an ETF is only a new name for a very ancient banking product, called an Investment Trust. These were very popular long before even computers were being widely used, which shows you how ancient this basic financial product really is. Investments Trusts have even been out of favour many times in history but are now back in vogue with their new ETF name.
In fact an ETF approval by the SEC could actually disrupt Bitcoin as it places the banks and the US in a unique position to oversee Bitcoins development. If the demand for the ETF explodes then the custodians of the ETF could in fact end up controlling much of the available Bitcoin. One potential catastrophic result of this would be an eventual hard fork as the community disagrees with this level of centralisation in Bitcoin’s decentralised system.
To ETF or not ETF…
Therefore it could actually benefit the old world of banking to have a large scale Bitcoin ETF s they can then also profit on the way up to controlling it more.
Furthermore, if the SEC doesn’t approve the Winklevoss ETF in 2017, another countries stock exchange will approve one soon and then the SEC and NYSE/BATS would have ceded the opportunity to have some level of control over such a new world strategic asset and emerging technology. Not forgetting missing out on all the associated fees.
An ETF approval by the SEC will cause an explosion in Bitcoin Price in the short term but be careful what you wish for. As soon as the hype has faded and all the pension funds have loaded up on the Bitcoin ETF shares there will be little other place to go but down. Then you can just hear the cries of the media of how all the teachers lost all their hared earned pension money to Bitcoin. This type of news can only hurt Bitcoin’s growth and adoption and we could then see another lull like that Bitcoin experienced between 2013 and 2015.
However every one of Bitcoin’s setbacks and negative news flows seem to increasingly have shorter duration before the momentum picks up again and the overall long term upward trajectory for this technology is inevitable.
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