Financial market research and analysis

The VanEck SolidX Bitcoin Trust ETF

Investors are eagerly awaiting the results of the SEC decision on the VanEck SolidX Bitcoin Trust ETF on September 30. The decision has already been postponed once this summer.

According to the last update, the SEC “designated September 30, 2018, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change” described in the application issued by the VanEck SolidX Bitcoin Trust.

Compared to previous attempts, the VanEck Bitcoin proposal has a better chance of being approved. The VanEck proposal involves buying Bitcoin futures on the CME, rather than Bitcoin itself. The SEC has historically rejected applications for Bitcoin ETFs because the underlying asset is still inherently unregulated. Regulators remain concerned about Bitcoin ETFs being listed on the New York Stock Exchange (NYSE) or the Nasdaq.

The idea behind ETFs

ETFs (Exchange Traded Funds) were created to give investors exposure to a diversified portfolio of financial assets at low cost with better transparency.

Bitcoin ETFs would only track Bitcoin, which means that investors are only exposed to that single asset, much like futures-based commodity ETFs. Investing in only a Bitcoin ETF would not offer the kind of diversification offered by buying something like an ETF on the S&P 500. However, adding Bitcoin ETFs to a portfolio would add an additional asset class for diversification i.e. cryptocurrencies.

ETFs are relatively easy to use and would be convenient for investors who do not want to own the underlying asset and/or are reluctant to go through the process of opening digital wallets etc.

What is the SEC worried about?

The biggest worry the SEC has in regards to the cryptocurrency ecosystem is the lack of regulation, control and market surveillance. The absence of all these things increase the potential for market manipulation (pump and dump, spoofing, etc.).

The lack of outside regulatory agencies to watch the cryptocurrency world is of primary concern to the SEC. Typically the SEC will accept financial products from companies that offer protection against malfeasance within markets, as well as between market participants.

At the moment, the crypto world isn’t a market that is sufficiently regulated for the SEC. We suspect the agency may choose to completely decline the ETF and wait for the market to mature. Market consensus seems quite evenly split- with another delay until February being perhaps the most likely.

How would the creation of a Bitcoins ETF affect crypto prices?

An approval of Bitcoin ETFs by the SEC would give legitimacy to the cryptocurrency world. An ETF would give Bitcoin a stamp of approval as a real investment option. Something that could be used in professional portfolios, as well as by retail investors. Such an approval would likely increase the mass adoption of cryptocurrencies as part of an investment strategy.

The decision on the VanEck SolidX Bitcoin ETF may be make or break for the price of Bitcoin holding $6400.

An approval seems like the least likely result and could see prices skyrocket. A 5-10% price jump in Bitcoin is not unheard of and seems very plausible. If a Bitcoin ETF is approved, it beggars the question ‘which cryptocurrency will be next?’. The other top ETFs including Ethereum could see 10+% positive price moves on an approval.

It wouldn’t be the first rejection were it to occur so it wouldn’t have to be game over for Bitcoin. The issue is that some shorter-term crypto traders may have been holding on for an ETF approval and sell out if it doesn’t come. The 5000 level would be the next natural target should the $6400 level give way.


(Source: TradingView, September 24)

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