Effects Of ETF On Bitcoin Ecosystem: What To Expect
From China to the US, no regulatory body has approved any issuers’ plans for a Bitcoin or cryptocurrency ETF despite several applications seeking for such an approval have been filed. All eyes are on the US Securities and Exchange Commission (SEC) with the hope that its approval of any of the filings with it will help turn the tide.
This is yet but dicey. Earlier this year, the SEC asked several issuers to withdraw their plans for Bitcoin ETFs and it recently delayed its decision on whether to approve five Bitcoin-related ETFs until September. Yet, these odds do not deter many crypto enthusiasts who are convinced an approval is on the way. Here are some of their arguments for a positive outcome especially in the case of the CBOE-backed VanEck-SolidX Bitcoin ETF:
– The SEC would rather approve an ETF backed by an existing institution (e.g. CBOE) over a new one like the Winklevoss’ whose filing was rejected again last week.
– A SEC Commissioner’s public dissenting opinion on the Commission’s rejection of the Winklevoss ETF application highlights the need for the instrument’s protection against price manipulation – a huge plus.
– A major concern cited by the SEC for the Winklevoss ETF application denial is price manipulation. The VanEck-SolidX ETF is towing a different line: It would be tied to multiple exchanges unlike the Winklevoss’ whose price is tied to a single exchange.
– The VanEck-SolidX ETF is dependent on multiple over-the-counter (OTC) entities for its purchases and prices. It seeks only institutional investors as a safeguard.
– The tendency of a big firm like the VanEck-SolidX (worth about $40 bln) towards Bitcoin investment (a third attempt) will exert some pressure on the SEC.
What to expect if and when the ETF is approved?
A full mempool
The ETF approval could relive the December 2017 price rise experience. The spike last year led to higher transaction fees which disappointed users as Bitcoin’s limitations were brought to fore. The mempool grew rapidly as transaction demands exceeded average daily capacity. If that happens again on the ETF approval, the ecosystem would have to be ready. It may depend on Segwit’s increasing adoption (its capacity is still growing) since Lightning Network‘s impact to take transactions off chain is still almost not felt or hope that institutional investors will help avoid higher transaction fees by buying and holding their coins in the ETF without moving them much.
When approved, a flood of fiat is expected to enter Bitcoin through the ETF. Each contract will be worth 25 BTC opening up a new world of liquidity to the crypto market. It will significantly improve perceived regulatory risk and afford many people, including main-street investors, to gain easy access to the crypto market.
The main reason why some hold certain altcoins today is to ultimately increase their Bitcoin stacks. The existence of an ETF, in addition to the rising use of the Lightning Network, will likely decrease the value of altcoins – though they may regain later on.