How Likely is a Bitcoin ETF?

New talks have developed about re-addressing the famous Bitcoin ETF that was shot down early last year, except this time skeptics are more optimistic. The new ETF proposal, introduced by VanEck and SolidX, and put forward by CBOE, suggests major fixes that previous proposals failed in. Introduced in August of 2018, the Van Eck proposal has received much more attention and is understood to be the most anticipated ETF so far, with a final decision date set for the end of February 2019.

A positive ruling in the Bitcoin ETF proposal from such a large regulatory body would likely cause a surge in institutional money. However, although a Bitcoin ETF is likely to happen eventually, it may be too soon to propose yet another. With Bitcoin still facing a bear market and multiple ETF proposals already rejected by the SEC, some still question if the contents within and backing behind this new proposal are legitimate or just another hyped up investment option for Bitcoin.

SEC Chairman, Jay Clayton discussed his insights into what core characteristics the SEC looks for in a Bitcoin ETF, claiming that viable custody solutions, scalability, and risk-free investment opportunities are necessary for such a proposal to proceed:

"What investors expect is that the trading in that commodity that is underlying the ETF is trading that makes sense, is free from the risk or significant risk of manipulation. Another thing they really care about, [that] we really care about, is that the assets underlying that ETF... that you have good custody of it, that it's not going to disappear, that the risk in the ETF is truly the risk in the value of the underlying asset, it's not the risk of theft or disappearance. Those two issues are important to me to get comfort on before we would allow an ETF with a digital currency underlying it to go forward.” - Jay Clayton, SEC Chairman

Currently, Bitcoin fails to deliver those options.

Without strong liquidity, investors can't take advantage of profits. Without proper issuance and asset tracking protocol implementation, there is no way for governing bodies to warehouse and secure investor funds. And without transparency and correspondence in market valuation, there is no way to protect against price manipulation.

Many believe Bitcoin is fundamentally incompatible with the current financial system and set of regulations, claiming it defeats the purpose of a decentralized ecosystem, while other believe the only way to present further growth opportunities for the market is to enforce compliance, allowing access for institutional money to flow in. But for governing bodies it’s not about want. Questionable circumstances about industry workings have required oversight from regulators to ensure no foul play is involved with the security of investor funds.