With rumors that regulators will soon adopt a pure Bitcoin fund (BTC), it is important to understand the path of some crypto ETFs that have recently been approved by government agencies.

The US Securities and Exchange Commission has approved a Bitcoin-Neighboring ETF that gives investors the ability to access bitcoins through the stock markets, with the latest adoption being the ProShares Bitcoin Strategy ETF, which began trading on NYSE Arca on October 19.

It is important to note that the above ETFs are not pure crypto ETFs, but only serve to track a company’s stocks associated with cryptocurrencies or futures.

The Securities and Exchange Commission (SEC) has yet to approve a non-cryptocurrency ETF, unlike Canada this spring, when regulators approved three Ether (ETH) ETFs from three different companies: Purpose Investments, Evolve ETFs, and CI Global Asset Management.

Despite the good news that regulators are starting to accept crypto ETFs, many questions remain about why there are so many problems with their listing. This fall, there were a lot of expectations and speculations about what exactly ETFs are and how they can increase – or hinder – the cryptocurrency market as a whole. Below are the issues, challenges and potential futures for cryptocurrency-backed ETFs.

regulatory incompatibility
Exchange-traded funds are usually investment funds that follow a basket of assets in the stock market and can be traded in the same way as common stocks.

While ETFs exist for almost all assets, the problem with cryptocurrencies is that regulators are still not sure how to identify bitcoins and other cryptocurrencies and how to protect consumers from exposure. These problems can become a problem as net ETFs begin to appear in stock markets, as lack of clarity of regulation can cause regulatory problems in various national authorities and around the world.

For example, different financial regulators in the United States have different – sometimes conflicting – views on what cryptocurrencies are, especially when it comes to taxation and trading.

In 2020, France’s most important financial regulator, the Autorite des Marches Financiers (AMF), responded to the European Commission’s directives on so-called “cryptoassets”, noting that it is too early to define them clearly. A Cointelegraph spokesman said at the time:

AMF believes that it may be premature to make an accurate assessment applicable to cryptocurrencies at this stage. Only after strong feedback will we be able to assess the suitability of an accurate classification (eg “instrument tokens”, “security tokens”, “payment symbols”, “stablecoins”, etc.). ”
French fund manager Melanion recently approved a bitcoin-following ETF in the hopes that the stock will track the price of bitcoin, first in the French market and soon in several other markets across Europe.

Cointelegraph contacted Gad Comer, Founder and CIO of Mellanion, who mentioned this because in the European market it is not possible to open Bitcoin directly to investors through the UCITS structure – “the format used by 99% of mutual funds.” Europe “- the company had to be smart and create” a unique methodology for building a global index that measures companies’ exposure to bitcoin. ”

This means that the ETF tracks the stocks of companies that invest in bitcoins, mine bitcoins, or otherwise participate in the cryptocurrency market, but do not contain the bitcoins themselves. “The index selects the companies most affected by bitcoin and rates them according to their historical correlation (beta) with bitcoin performance,” Kummer said.

Fear versus risk?
There may still be risks associated with highly volatile assets such as cryptocurrencies, especially Bitcoin-backed ETFs in futures.

Bitcoin ETFs track a basket of futures contracts, not Bitcoin itself. Since the price of a bitcoin futures can differ from the spot price, there is a possibility that the ETF may not accurately track the price of bitcoins, putting the ETF holder at risk.

“Contango” refers to the time when the futures price is higher than the spot price, and “backwardation” refers to the time when the futures price is lower than the spot price.

On the subject: Cryptocurrency Breaks the Wall Street ETF Barrier: Dividing Point or Gap?

What’s more, this high volatility means regulators could move to implement more investor protection, especially after seeing the leaps that have taken place in the cryptocurrency market over the past six months. This begs the question:

Can a traded fund mitigate volatility risk?

Source: CoinTelegraph

LEAVE A REPLY