I still recall that one of the major catalysts of the bitcoin price run in 2017 was the filing and development of a potential Exchange Traded Fund (ETF) for bitcoin. In the past, establishing ETFs for commodities and even other assets have proven to be a catalyst for the underlying asset price as it provides an easy gateway for investors to gain access to the asset. The easy access establishes demand for the asset and considering that commodities have supply constraints, it is easy to see why the price increased given the thought of seeing one ultimately being available.
However, there have been many reasons why it has not become a reality as regulators have mostly denied this opportunity. One of the considerations is the concern on how unregulated commodities can be controlled in the markets that are not traditional. Other have suggested that the markets for cryptocurrencies like bitcoin are manipulated and will lead to losses for investors. Despite many of these considerations also being a reality for other commodities, the prejudice against many digital assets and their potential disruption to traditional financial markets have blocked the path for an ETF being possible in the short term.
We have also recently seen how these financial instruments can implode as well. Last year, we saw how ETFs related to the volatility in markets were unexpectedly caught off-guard as the first spike in volatility made the underlying future contracts become uninvestable for a short time. This caused the insolvency of some of the ETFs actually betting against volatility which even caused concern to the underlying structure of the markets. We saw financial markets rocked due to this.
Also, this year we saw how oil markets have been hit hard due to not only economic concerns but geopolitical as well. This caused a negative price for a commodity which is the first time that futures contracts actually were priced negative. When participants and market observers looked closer, it became known that the negative price action was mainly led to the fact that the Oil ETF was forced to liquidate it's positions on the front month contract before expiration as they were not built to take delivery on the underlying asset of oil. The fire sale was exaggerated as the size of the fund (assets under management) was a high percentage of the outstanding futures contracts. Therefore, in a weird sort of way, they became its own market.
These learnings have led me to think that a bitcoin ETF is really not a positive catalyst for the cryptocurrency. While it would provide a great way for investors to participate in the asset class, it will only fuel the speculation of the price and not lead to what should truly be the goal for the Bitcoin ecosystem, adoption. Although many of the fund managers have suggested innovative ways to avoid the issues that we have seen in ETFs, I believe that the limited supply of bitcoin and the only modest liquidity currently available, will make it impossible for regulators to approve an ETF in the future. However, I stand by the thought that we do not need one for the Crypto asset class to remain relevant and continue its growth and adoption.
Post was Originally Posted on the HIVE Blockchain
Chat with me on Telegram:@NewAgeInv
Follow me on Twitter: @NAICrypto
The following are Affiliate or Referral links to communities that I am a part of and use often. Signing up through them would reward me for my effort in attracting users to them:
Start your collection of Splinterlands today at https://splinterlands.io?ref=newageinv
Expand your blogging and engagement and earn in more cryptocurrencies with Publish0x! Sign up at https://www.publish0x.com?a=MYer5oLdOB
The best new browser to protect your privacy while still being faster and safer. Try the Brave Browser today with my affiliate link here: https://brave.com/wdi876
DISCLAIMER: The information discussed here is intended to enable the community to know my opinions and discuss them. It is not intended as and does not constitute investment advice or legal or tax advice or an offer to sell any asset to any person or a solicitation of any person of any offer to purchase any asset. The information here should not be construed as any endorsement, recommendation or sponsorship of any company or asset by me. There are inherent risks in relying on, using or retrieving any information found here, and I urge you to make sure you understand these risks before relying on, using or retrieving any information here. You should evaluate the information made available here, and you should seek the advice of professionals, as appropriate, to evaluate any opinion, advice, product, service or other information; I do not guarantee the suitability or potential value of any particular investment or information source. I may invest or otherwise hold an interest in these assets that may be discussed here.