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The fund management industry is continuing to charge into the brick wall represented by the SEC’s concerns around Bitcoin ETFs. Fund managers would dearly like to be able to launch a fully regulated exchange traded fund that would track the price of Bitcoin, because they can foresee the millions in investment dollars that would flow into such a fund.

Stamp of ETF respectability still elusive

The enthusiasts behind Bitcoin and other cryptocurrencies see an ETF as stamp of respectability for Bitcoin as the sort of investment your pension fund might want to put money towards. Until the SEC gives its blessing, however, that is not going to happen, and Bitcoin is going to remain a fringe asset class, regardless of how many digital fans it has.

The latest casualty is VanEck, the US ETF manager, which has announced that it is pulling the application it had lodged with the SEC for a Bitcoin ETF. According to Gabor Gurbacs, a director at Van Eck:

“The Bitcoin ETF application has been temporarily withdrawn. We are actively working with regulators and major market participants to build appropriate market structure frameworks for a Bitcoin ETF and digital assets in general.”

One of the concerns with the SEC, which the US regulator has repeatedly aired ever time one of these applications is submitted, is that Bitcoin sits on a market infrastructure which is not like public markets. It has not been robustly tested in a market crisis. The currency is too susceptible to manipulation and to the decision of a small number of individuals.

A fork can have a major and fundamental impact on the value of a cryptocurrency – and the SEC has noticed this too.

“This proposal had a very slim chance of success,” observes Mati Greenspan, financial markets analyst at eToro. “SEC chairman Jay Clayton had been stressing that the Bitcoin market is not yet mature enough for an ETF. Recent price action seems to confirm this, as we’ve seen a number of price spikes due to the low liquidity lately.”

The application was further complicated by the fact that President Trump has shut down the US government, including the SEC, making it much harder to get products approved at the moment. The VanEck application had a 27 February deadline, but there is currently little end in sight for the government show down.

Bitcoin price remains steady on VanEck ETF news

The Bitcoin price dropped marginally on the news, but it is currently down at the $3500 where the ownership seems to be the cryptocurrency hard core. Bitcoin traders, as Greenspan observes, seem to understand the dynamics involved in getting a Bitcoin ETF approved by the SEC.

The VanEck withdrawal has probably had less impact because it is really the die hards in the market at the moment, plus crypto funds who are there for the long term, like people who bought Amazon at the IPO. Their hope will be that Bitcoin will again soar to the heights it enjoyed over a year ago, and then they can make their profits.

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Stuart Fieldhouse

Stuart Fieldhouse has spent over 20 years in journalism and financial communications, including six years as a wealth management correspondent for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong.

Stuart has worked as head of content at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Stuart continues to work with hedge funds, private banks, stock exchanges and other financial institutions on their communications, data and marketing requirements.

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