Bitcoin may be hogging limelight in the investing world, but its ETF form was not that attractive to the SEC. Winklevoss Bitcoin Trust has filed for one to make bets on this soaring digital currency easy. Investors were hoping for a YES from the SEC, but the opposite happened. The SEC declined the proposal apprehending chances of fraud
What is Bitcoin?
Bitcoins are 'mined' by using a greater amount of computer processing power. However, since there is a fixed amount of bitcoins, as the limit is reached, it becomes hard to 'mine' for the coins. The best part of this system is that it is beyond the reach of central banks.
The committee did not "find the proposal to be consistent with Section 6(b)(5) of the Exchange Act , which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest."
The news hit the cryptocurrency hard on the March 10 judgement day when its price fell about 15% to $1,050. Bitcoin pricings had been firing on all cylinders since the beginning of 2017, which drove it past the $1,100 mark on February 21, 2017 - the highest in more than three years . Notably, its value beat the $900 mark in late December for the first time since February 2014. In mid-2015, the currency was at around $200 (read: Explaining Bitcoin and Crypto Currency ).
The tussle between the U.S. Securities Exchange Commission and Winklevoss over the launch has been going on for about three years. In fact, the issuer has restructured the proposals for the Bitcoin ETF multiple times.
While the first ETF did not gain approval, other issuers filed for their products on this currency. SolidX Partners sought SEC approval last July for its bitcoin ETF, SolidX Bitcoin Trust , which also would be listed on the NYSE. In January 2017, Grayscale Investments filed to list its own Bitcoin Investment Trust on the NYSE. The SEC's rigidity could also make the situation tough for these two products.
However, after an initial dip, the bitcoin bounced back all over again. It has gained about 13% since the SEC's decision. This could be because of the fact "bitcoin isn't regulated by any government and has been used by consumers worldwide to shelter assets from inflation or political upheavals in their home countries."
Bloomberg noted that bitcoin topped all key foreign-exchange trades, stock indexes, currencies and commodity contracts last year, which can be a proof of its sturdiness.
As per CNBC , "bitcoin is a very volatile asset" but doesn't have a strong correlation with other asset classes. Bourgeoning trading volumes in China, bitcoin's largest market, has favored the price. As Chinese investors wanted to shield their portfolio from a depreciating yuan, they bet big on bitcoin, driving the currency to double in 2016.
Moreover, trading volumes in China have been solid with the government taking proactive measures against illegal money transfer. As per an article published on CNBC , Bitcoin is emerging as a safe haven asset like gold.
With SPDR Gold Shares GLD coming under pressure due to rising rate prospects in the U.S. and a higher greenback, one can possibly find safety in seemingly safe or alternative assets like bitcoin.
Other digital currencies like Ethereum, Dash and Monero have also been gaining considerable attention these days. Since SEC's bitcoin ETF decision on March 10, 2017, these three currencies have gained about 60%, 59% and 40%, respectively.
The prospect may be strengthening for bitcoin, but the SEC needs more proof of the safety in bitcoin trading. Only then can we expect a bitcoin ETF. As of now, investors have to be happy with traditional safe-haven assets and gold and silver bullion ETFs like GLD and iShares Silver Trust