While the world is eagerly awaiting for US SEC’s decision on Bitcoin ETF filed by CBOE, the SEC has struck lightning by postponing its decision on the Direxion Bitcoin exchange-traded fund (ETF) filing until September 2018. So, what if Cboe sponsored Bitcoin ETF gets delayed or rejected for that matter, what and how big can be the impact?
CBOE sponsored Bitcoin ETF: Can it get delayed?
While the world is preparing for Chicago Board Options Exchange Global Markets’ (CBOE)-Solid X Bitcoin ETF decision will be coming soon, this deferment of Direxion Bitcoin exchange-traded by SEC, has raised alarms that there are chances it may differ the CBOE Solid X ETF as well. Since the SEC has 45 days from the date of publication in the Federal Register and may have another window for an extension, there is every possibility SEC would want to utilize the time to come to a fair decision so that it could be in the best of all the stakeholders.
As the markets are moving the way they are and there is momentum being built upon BTC which has shot up over USD 1000 over past week or so, the delay news may come with a mild correction which may recover shortly after. With Direxion Bitcoin exchange-traded fund (ETF) already being delayed the market is somewhere ready for it.
In fact, an approval would have a larger positive impact on the BTC prices than a delay would have on a negative side.
What if the application gets rejected?
If the CBOE- Solid X ETF application gets rejected, it would not be the first time the application would be rejected. It has rejected more than 15 bitcoin-related ETFs that have been proposed since 2013 and over the past one year, there have been a few rejections already which includes to the likes of CBOE, Gemini, and SolidX.
As for SEC, there are still a lot of hurdles that need to be cleared before it could pronounce anything in favor,
- Unregulated market and transparency: One of the reasons Bitcoin had shot down the Winklevoss ETF application was that it felt the BTC market was still in the relatively early stages of its development and the market was fairly unregulated. Also, transparency of prices and exchanges was questioned and considered a key factor for rejection. Bitcoin markets are still unregulated and also a lot of exchanges still has transparency issues.
- Pricing effectiveness: As crypto prices are highly volatile; SEC’s other concern was about how the funds would work and whether they could be priced and trade effectively. Also at a time SEC also believed that BTC was illiquidity to an extent and hence it could trap the funds. – The pricing effectiveness is still difficult as there is still a wide difference in prices across exchanges and volatility still persists
- Security of Exchange: Since a lot of major exchanges have faced security lapses and hacks, the SEC is still not convinced that the underlying assets of Bitcoin will be secured and safe.
Although a lot of other hurdles such as retail investor protection, the presence of custody services and availability of Bitcoin futures on CBOE and CME exists still these don’t look enough that could confirm BTC ETF by CBOE and SOlidX will go through
Looking at the impact of this on pricing, apart from the initial rejection of Winklevoss bothers, which saw a major collapse of Bitcoin from sub USD 1300 to USD 950, all other ETF rejections did not see a drastic negative impact on prices in short-term and the long-term sentiment remained intact. Whatever price correction had occurred because of the rejection news, was also seen being recovered in the coming few days.
As the situation currently is, looks like the event has gathered to much noise around it which would definitely lead to a price correction for the short term but the long-term trend may not be affected much. An ETF in crypto definitely and can change the direction of institutional money to cryptos. But its rejection is not an end to the road although it may dampen the sentiment for a very short term. Institutions will still have options a lot of options to invest in cryptos including the futures on CBOE and CME and also exchange-traded notes which are currently listed in Sweden and been contemplated in a lot of other European countries.
The article is not meant to dampen the excitement and positivity build around Bitcoin ETF, but more of a devils advocate to keep crypto community prepared if the decision doesn’t come in favor of Bitcoin ETF’s. It would just mean that the crypto markets need to mature more before the SEC can finally allow it. The short-term sentiment might turn bearish but in medium to long-term Bitcoin will definitely recover
Will SEC approve the ETF this time or will delay or reject it? Do let us know your views on the same.
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Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.