If the notion of cryptocurrency wasn’t confusing enough, things could be about to get a whole lot worse. Regulator inboxes recently ground to a halt as crypto-enthusiasts pushed for the fabled Bitcoin ETF. But if this sounds like more jargon in an overly-jargonized world, then perhaps you should read on; as an ETF could be just the impetus Bitcoin needs to kick the crypto-bulls back into action. Even if the ETF feels irrelevant to you as an everyday investor, it could have a profound impact on the market. We’re on the cusp of the next innings in cryptocurrency.
Wait, what is an ETF?
An exchange-traded fund is just another term for an investment which tracks an index, a commodity, a collection of shares – but behaves in the same way as a single stock. It is listed on an ordinary exchange with the price moving up or down based on the buying behavior of those in the market – as influenced by the performance of the underlying asset. In the world of stocks and shares, the ETF offers a cheap way for investors of all scales to trade a collection of assets. Better yet, it is efficient, simple—and regulated.
In essence, the ETF encourages liquidity in the market. And this is where it gets interesting.
I Still Don’t Get It.
Bitcoin has a few issues limiting its adoption. Crypto-exchanges typically don’t have much liquidity due to limitations around who can invest, which makes the price of Bitcoin volatile as large transactions create massive swings. Institutional investors cannot enter the market due to a lack of regulation. So, the exchange liquidity problem persists—as does the volatility—and the prospect of widescale adoption remains slim.
A Bitcoin ETF would provide a regulated, exchange-based method for larger institutional investors to enter the market.
So, more capital could flow in.
- More capital equals more liquidity;
- Liquidity enables more frequent trades;
- Higher trade frequency could reduce volatility;
- Less volatility presents a more legitimate currency;
…and (5) is where it gets exciting for everyday investors: legitimacy equals something the wider public could use.
Something the public use will be much more valuable.
An ETF Could Boost the Price of Bitcoin
A stable, regulated means of entering the Bitcoin market will draw in ever-greater numbers of investors—and as more people invest in Bitcoin, its adoption will become widespread.
Mass adoption of the leading cryptocurrency is the biggest single factor in the long-term viability of cryptocurrency on the whole. So, when there’s talk of legitimate investment vehicles such as a Bitcoin ETF’s doing the rounds, it’s understandable the market gets excited.
But the discussion for a Bitcoin ETF has appeared on several occasions, only to be quashed each time. Broader questions around regulation and price manipulation are still unanswered, while security concerns persist as Bitcoin hacks occur with worrying frequency.
But, these are problems both the SEC and the crypto-Illuminati are looking to solve.
One belief is for sure – the creation of a Bitcoin ETF would be the first reliable indication of cryptocurrency entering the mainstream. And with the volume of institutional money waiting for a legitimate means of investment, this could have a transformative effect on the market.