Bitcoin Exchange Traded Fund (ETF) May Be the Last Link to Drive Mainstream Institutional Adoption

Godfrey  |  Feb 18, 2021

Bitcoin (BTC) has entered unchartered price territories as its all-time high price surged past $51,000 today, February 17, 2020. The growth of digital currency has not only served as a yardstick for measuring the growth of the global cryptocurrency market, but it has also helped spiked interest in the coin amongst conservative investors.

With Bitcoin trading at prices above $51,000, the argument about the ongoing bull run which many have tagged a bubble, retracing back below $10,000 is becoming weakened by the day. What however remains at the forefront of many observers is whether the inpouring of institutional investors into the crypto space will continue with as much momentum.

As many may agree, corporate investors particularly the publicly traded ones are more cautious in how much they utilize investors’ funds, irrespective of the need to generate profit. While the cryptocurrency ecosystem offers the potentials for great returns, the volatility inherent in the space is a source of concern to many of these investor classes.

One major way to allay the fears of investors with respect to this volatility is the involvement in Bitcoin-based exchange-traded funds (ETFs). An Exchange Traded Fund is a type of investment fund and exchange-traded product, implying that they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold throughout the day on stock exchanges while mutual funds are bought and sold based on their price at the day's end.

In the Bitcoin-based version of these investable products, corporate investors are able to gain exposure to dealing with the premier cryptocurrency, with the protections offered by the regulations binding the bourse on which they are traded.

The rollout of these Bitcoin ETFs may indeed be one of the first, or perhaps the last link to encourage the mass participation of corporate investors in the world of Bitcoin investments. While this move has its potential benefits, approving the applications for such products has met with a tough rebuff from United States regulators.

Owing to the disparity in regulations governing cryptocurrencies, the U.S. has refused to grant any Bitcoin ETF application from the likes of Bitwise, VanEck, and others who have made the attempt to date. NYDIG, the Bitcoin subsidiary of Stone Ridge, an investment manager with over $10 billion in assets under management has recently sent in its application for a Bitcoin ETF, with high hopes that the SEC will reconsider its previous negative position.

Regulators in other nations including Switzerland, Germany, and much recently, Canada and Australia amongst others have approved some Bitcoin ETF product applications to be traded on their public exchanges. 

Many US companies are already buying up Bitcoin. This twist began last year with Nasdaq-listed MicroStrategy Inc. and Square Inc. pioneering the move. As the terrain has changed, so also is the expectation that the stance of American regulators will change with respect to allowing Bitcoin ETF products to come alive. If this happens, a new realm will be ushered in marking the mainstream participation of institutional investors.

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