Bitcoin trading is approaching a watershed moment today as the SEC – the US regulator – is due to announce whether BATS, an American securities exchange, can accept the listing of an ETF that invests in the Bitcoin market. It is a big step for Bitcoin, once regarded as a fringe crypto-currency, in that it would make it possible for investors to buy a legitimate stock market instrument that shadows the Bitcoin price.
Bitcoin’s ‘respectability’ has been increasing of late: one unit of the currency is now worth more than an ounce of gold. At the time of writing spot gold was trading at $1196 in London, versus Bitcoin at $1203.
The proposed new ETF is being sponsored by the Winklevoss brothers, who once crossed swords with Mark Zuckerberg for control of Facebook. However, there are two more Bitcoin-related ETFs on the SEC’s desk, one of which is based around the insurance of Bitcoin assets. But still, a green light for the Winklevoss project could provide Bitcoin with its biggest price boost, particularly as it would allow professional money managers who are restricted to buying listed assets, to buy Bitcoin, albeit indirectly.
One of the key obstacles facing this approval is not necessarily suspicion surrounding the Bitcoin market, but that the ETF would be dependent on businesses controlled by the Winklevoss brothers to source and store the Bitcoins. There are also ongoing concerns surrounding the way the Bitcoin market has been harmed in the past by skulduggery and scandal.
Bitcoin is a digital currency – it has some vehement advocates, but also it is missing some fundamental valuation data as an asset. A sovereign currency is still controlled by a government or a central bank – Bitcoin has no such thing. Yes, it meets a demand in the market for a globally recognised digital currency, but can anyone answer the fundamental question of what really underpins its value?
I’m sure the first paper money and the first futures contract were greeted with the same scepticism, and the names of the doubters will be lost to history.
“Denial of the proposed rule will not stop Bitcoin’s progress, but approval of the proposed rule, and the underlying COIN ETF, will put the SEC in the ideal position to oversee Bitcoin’s development as an investment asset,” says Phil Chronakis, a US lawyer.
The SEC will probably rule either today or tomorrow (Saturday 11 March) on the issue. If it rules against, it won’t stop Bitcoin’s advocates from trying again soon. It may be they just needed to provide the valuation of the ETF with a little more independence.