The cryptocurrency collapse this month has at least one bright spot for proponents of an exchange-traded bitcoin fund in the US
As the price of the largest digital asset plunged into the crater, the $ 660 million Bitcoin ETF (ticker BTCC) in Canada – North America’s first such fund – moved in lockstep.
That may not sound like a good thing, but it has kept the ETF’s price stable relative to the value of its assets.
The ability to continue trading without the large bonuses or discounts that appear in the price of a fund is a key argument in favor of an exchange-traded crypto vehicle. Unlike BTCC, for example, the Grayscale Bitcoin Trust (GBTC) traded $ 23.9 billion at a time during the turmoil, about 21% below its net asset value.
Regulators have yet to approve a U.S. ETF, also amid concerns about how a fund might deal with the token’s notorious volatility. But if Canada’s ETF has anything to offer, the concern might be misplaced.
The reason BTCC was able to keep its discount to a minimum during the sell-off is because it is an ETF. To keep the price in line with stocks, specialist traders create or swap stocks of the ETF to adjust the outstanding supply when demand shifts. This process doesn’t exist for trusts like GBTC, which don’t allow revocation of shares – which can lead to dramatic relocations.
“While the recent nasty bitcoin sell-off is likely to scare the SEC, it should do the exact opposite and give them maximum confidence in the approval as it has again shown how well the ETF can handle pressure thanks to its fungibility,” said Eric Balchunas. Bloomberg Intelligence ETF Analyst. Investors “deserve to get something that tracks price well – and ETFs have shown that they are the best structure for that.”
Bitcoin is down over 33% so far this month, hurt by renewed regulatory concerns from China and criticism from Tesla Inc.’s Elon Musk about energy usage. The world’s largest cryptocurrency is hovering near $ 37,900 per coin, down around 40% from its mid-April high.
At least eleven companies intend to launch a Bitcoin ETF in the US. Nine of them have filed an application since the end of 2020, according to a report by Bloomberg Intelligence. VanEck renewed that push with a filing in late December, but the SEC has postponed a decision on its filing until at least June. VanEck also filed for an ETF tracking the second largest cryptocurrency ether.
Hopes for approval of the Bitcoin ETF in 2021 have diminished somewhat in recent weeks. New SEC chairman Gary Gensler told Congress that the crypto market “could benefit from better investor protection,” and later a letter from the Securities and Exchange Commission officials warned that Bitcoin was “highly speculative” and volatile.
However, according to Todd Rosenbluth of CFRA Research, Bitcoin’s turmoil shouldn’t prevent the SEC from giving the green light.
“The regulatory approval process for a US Bitcoin ETF seems to be more focused on whether or not they comfort the risks associated with Bitcoin in a fund and whether the fund might get too big to handle the lack of liquidity in the market.” said Rosenbluth, the company’s director of ETF and mutual fund research. “I don’t think Bitcoin’s volatility is affecting the decision-making process, but the fact that demand remains high could add data to support their concerns about the impact of the fund’s potential size and the inability to close out new investors . “
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