As we await the decision on the Winklevoss proposed Exchange Traded Fund (ETF) for bitcoin, speculation on its impact is a hot topic in the industry. The proposal could bring in major funds for the popular cryptocurrency, but also may affect the rate at which its value fluctuates. Here, we take a look at what an ETF approval on 11th March 2017 could mean for the future of bitcoin.
What is an ETF?
First it’s important to know exactly what an Exchange Traded Fund is. The ASIC website describes it perfectly here: “ETFs are a type of investment that can be bought and sold like shares, through your stockbroker or online trading account. In Australia, all ETFs are 'passive' investments that track assets or a market index (for example, an index that tracks the top 200 Australian shares) up or down. ETFs generally do not try to outperform those markets or assets. ETFs are often promoted as an easy way to diversify your investments, usually with lower fees than traditional managed funds.” You can read more here. Attracting A New Pool of Investors
An ETF approval would see many otherwise uninterested investors suddenly sit up and take notice of bitcoin. For a long time now, this commodity has been seen by the traditional investment community to be mysterious and fraught with risk. Approval by the SEC would “add legitimacy to bitcoin in the eyes of investors — this alone is no small matter considering that many still associate bitcoin strictly with illicit activities,” as cited by Spencer Bogart in the Needham & Company Report released late last year. It is predicted that bitcoin as an ETF will appear more comfortable and safe rather than seeing it as an obscure and unsafe way to buy currency, attracting a new pool of investors.
Increase in Value and Fluctuations
Given that the number of bitcoins available in the world is finite – capped at 21 million – approval for the ETF is predicted to increase its value significantly, at least initially. As buyers potentially buy stock based on FOMO (Fear Of Missing Out),the increased interest in bitcoin, combined with its finite supply will push the price up. On the other hand, we should also see the value fluctuate more frequently than it does currently. Once the currency is on the stock exchange, buyers will buy and sell stock more often than usual cryptocurrency investors, where a “buy and hold” strategy is most common.
Will it be Approved?
With the value of bitcoin hitting a record high of USD1,200 in recent days, fuel has been added to the fire that an expected approval on its way. Only time will tell. We look forward to 11th March 2017 with interest.