Key Takeaway: Bitcoin is ending this week strong, coming close to it’s all time high of $64,000. This is the highest price that Bitcoin has witnessed in almost six months. This has left a lot of investors happy and optimistic about the end of year. But the real reason for this latest surge in price is most likely due to the possibility of a U.S. Bitcoin ETF approval next week…
The first U.S. listed Bitcoin exchange-traded funds (ETFs) are on track to launch next week. The SEC is reviewing around 40 bitcoin ETFs with multiple decision deadlines next week. Lawfully, the SEC does not need to take any formal action to approve the ETF filings. Under federal law, applications can become effective if the SEC allows a deadline to pass by without requesting changes or blocking the filing altogether. And according to Bloomberg, the SEC is expected to approve at least some of them, allowing trading to begin.
All the ETFs will be based on Bitcoin futures contracts, rather than the spot price. This is because the SEC is concerned about a potential lack of liquidity and the risk of price manipulation on spot exchanges. While the SEC has not made any official comments, they Tweeted on Thursday, “before investing in a fund that holds Bitcoin futures contracts, make sure that you carefully weigh the potential risks and benefits”. This implies that soon, the trading of a U.S. Bitcoin Futures ETFs will begin.
This un-official approval comes almost exactly eight years after the Winklevoss twins first applied to launch the first Bitcoin ETF in the U.S. when Bitcoin was trading close to $1,000. Since then, a multitude of other countries have all approved Bitcoin ETFs, including Switzerland, Germany and Canada – leaving behind the financial powerhouse that is the U.S.
While the SEC believes that Bitcoin futures are more appropriate for retail investors rather than trading in the spot market, they are unlikely to deliver the same returns. The Bitcoin futures market typically, though not always, trades with a mostly upwards trajectory. However, the potential for explosive gains is not as prominent.
While Bitcoin futures ETFs are said to offer more protection to investors, this approach will, unfortunately, create a set of returns that do not align with the typical returns that a spot investor would expect to make. Yes, Bitcoin futures ETFs will theoretically be less volatile than Bitcoin spot investing, but the explosive exposure that Bitcoin provides will be very different and much more tame. Regardless, the approvals are likely to open the floodgates to a stream of similar products, potentially fuelling a further leg up in the price of the cryptocurrency.
This news will undoubtedly contribute to explosive Bitcoin price appreciation during Q4 of 2021 and many are hoping that this is exactly what was needed to help Bitcoin hit the allusive $100,000 target that everyone has been talking about. For now, though, all we can do is wait, watch and hope that they’re aren’t any final bumps in the road.
Things look like they’re finally starting to align in the cryptocurrency industry. Strap yourself in, it’s going to be a hell of a ride.
