With rumors circulating that regulators will soon adopt a Bitcoin-only (BTC) -based trading fund, it is important to understand the path of some crypto-ETFs that have recently been approved by the government.
The US Securities and Exchange Commission has approved an ETF alongside bitcoin, giving investors the opportunity to access bitcoin through the stock markets, the latest being the ProShares Bitcoin Strategy ETF, which began trading on the NYSE Arca on October 19.
It is important to note that the mentioned ETFs are not pure cryptocurrency ETFs, but are simply a means of tracking a company’s shares related to cryptocurrencies or futures.
The Securities and Exchange Commission (SEC) has not yet approved a cryptocurrency-free ETF, unlike Canada this spring, when regulators approved three Ether (ETH) ETFs from three different companies: Purpose Investments, Evolve ETFs and CI Global Asset Management. …
Despite the good news that regulators are starting to accept crypto-ETFs, many questions remain as to why there are so many problems with their listing. This autumn, there was a lot of expectation and speculation about what ETFs are and how they can stimulate – or hinder – the cryptocurrency market in general. Below are the challenges, challenges and potential futures of cryptocurrency-backed ETFs.
regulatory incompatibility
Exchange traded funds are generally investment funds that follow a basket of assets in the stock market and can be traded in the same way as ordinary shares.
While ETFs exist for almost all assets, the problem with cryptocurrencies is that regulators are still unsure of how to identify bitcoins and other cryptocurrencies and how to protect consumers from exposure. These problems can become a problem when net ETFs begin to appear in the stock markets, as a lack of regulatory clarity can cause regulatory problems in various national governments and around the world.
For example, different financial regulators in the United States have different – sometimes conflicting – views on what cryptocurrencies are, especially when it comes to taxation and trade.
In 2020, France’s Financial Controller, the Autorite des Marches Financiers (AMF), reacted to the European Commission’s directives on so – called “cryptocurrencies”, noting that it was too early to define them clearly. A spokesman for Cointelegraph said at the time:
AMF believes that it may be too early to make an accurate assessment of cryptocurrencies at this stage. Only after strong feedback will we be able to assess the suitability of an accurate classification (eg “tool chips”, “security chips”, “payment chips”, “stablecoins”, etc.). ”
French fund manager Melanion recently approved a bitcoin-following ETF in the hope that its shares will track the price of bitcoins, first in the French market and soon in several other markets across Europe.
Cointelegraph contacted Gad Comer, founder and CIO of Mellanion, who mentioned this because in the European market it is not possible to open Bitcoin directly to investors through the UCITS structure – “the format used by 99% of equity funds”. Listing in Europe “- the company had to be smart and create” a unique methodology for constructing a global index that measures companies’ exposure to bitcoin. ”
This means that the ETF tracks the shares of companies that invest in bitcoins, extract bitcoins or otherwise participate in the cryptocurrency market, but which do not contain bitcoins per se. “The index selects the companies most affected by bitcoin and rates them according to their historical correlation (beta) with bitcoin performance,” said Kummer.
Fear versus risk?
There may still be risks associated with highly volatile assets such as cryptocurrencies, especially Bitcoin-backed futures ETFs.
Bitcoin ETFs track a basket of futures contracts, not Bitcoin itself. Since the price of a bitcoin futures may differ from the spot price, there is a possibility that the ETF may track the price of bitcoins inaccurately, which exposes the ETF holder to some risks.
“Contango” refers to the time when the futures price is higher than the spot price, and “backwardation” refers to the time when the futures price is lower than the spot price.
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Moreover, this high volatility means that regulators may move to implement more investor protection, especially after seeing increases in the cryptocurrency market over the past six months. This begs the question:
