VanEck’s Bitcoin spot ETF diversion strengthens the SEC’s prospects for cryptocurrencies

Bitcoin (Bitcoin) Since the US Securities and Exchange Commission announced the approval of ProShares’ Bitcoin Futures Exchange Traded Fund (ETF) in early October, its price has been soaring and hit a record high of more than 69,000 US dollars on November 10. data From the transaction view.

However, financial regulators have worsened sentiment in the following ways Reject VanEck’s proposal For the spot ETF on November 12, this triggered the price of the flagship cryptocurrency to drop to a 30-day low of $55,705 on November 19. At the time of writing, the token is trading at $56,000.

An ETF is a class of securities that track assets or a basket of assets (in this case, Bitcoin) and can be traded on the stock exchange like any other stock. Proshares’ BTC ETF is the first ETF approved by the U.S. Securities and Exchange Commission 20 applications have been submitted to financial regulators In the past.

VanEck’s CEO Jan van Eck was unhappy that his company’s ETF was rejected.

The difference between Bitcoin ETFs currently approved for trading on US stock exchanges such as Nasdaq or Chicago Board Options Exchange and VanEck’s rejected Bitcoin ETF is that VanEck’s ETF proposal is a spot ETF, and all approved ETFs are Futures ETF.

Van Eck said that spot ETFs are a better choice. Tweet“We believe that investors should be able to obtain #BTC exposure through regulated funds, and the non-futures ETF structure is a better approach.”

SEC Chairman Gary Gensler previously Voiced He supports futures-based BTC ETFs rather than prices.In the official Decide In order to reject VanEck’s ETF application, the US Securities and Exchange Commission stated that the product failed to meet “the requirements of the National Stock Exchange’s rules to’prevent fraud and manipulative behaviors and practices’ and to’protect investors and the public interest’.”

Futures are usually a higher risk product

However, it may be that when the US financial regulator rejected VanEck’s spot ETF, it released a riskier product to the same investor that it aimed to protect, because it allowed Wall Street institutional funds to take advantage of Bitcoin’s price changes. .

Futures contracts give the contract holder or buyer the obligation to purchase the underlying asset, and the contract seller or seller is obliged to sell and deliver the asset at a specified price on a specified future date, unless the holder closes the position in advance to the expiration date.

Combined with options, these financial instruments are usually used to hedge other positions in the investor’s portfolio or profit from pure speculation without the need to purchase the underlying asset. These markets are usually dominated by well-funded institutional investors to cushion any losses in their investment portfolios.

Although futures can only be used to minimize the risk of investors, the riskier is the use of leverage in the futures market. Leverage is the ability to use borrowed funds and/or debt as market transaction capital to amplify the return on a position. Essentially, investors use it to increase their purchasing power in the market.

related: Inflation winds from all over the world have brought earth-shaking changes to Bitcoin

Although leverage also exists in the spot market, its impact is much smaller. However, for futures contracts, the leverage ratio may be as high as 95%, which means that investors can easily buy option contracts with 5% of the required capital and then borrow the remaining funds. This means that any small fluctuations in the price of the underlying asset will have a great impact on the contract, causing investors to require a margin call due to the forced liquidation of the futures contract.

Margin call is a situation in which the value of the investor’s margin is lower than the amount required by the exchange or broker. This requires investors to deposit an amount called maintenance margin into the account to replenish the minimum allowable value. This may also result in investors having to sell other assets in their portfolio to make up for this amount.

It is worth noting that these risks inherent in futures contracts have nothing to do with the nature of the underlying products, but are related to the way the futures contracts are traded in the financial market. Du Jun, co-founder of Huobi Global, a cryptocurrency exchange, spoke to Cointelegraph about the decision of the US Securities and Exchange Commission:

“Given the current situation, futures ETFs may be the best choice accepted by the US Securities and Exchange Commission. Indeed, futures ETFs are usually complex and have a higher risk profile, but futures ETFs have some characteristics that meet the needs of the SEC.”

Jun believes that, first of all, the regulators have not figured out the BTC spot price setting process, leading them to believe that the price is easily manipulated; therefore, futures ETFs that are not directly linked to BTC will provide better protection for investors.

In addition, futures ETFs provide investors with opportunities to go long and short BTC to hedge their BTC assets instead of holding units of BTC that are physically backed.

Antoni Trenchev, the co-founder of the crypto trading platform Nexo, told Cointelegraph, “The U.S. Securities and Exchange Commission does not seem to be ready to allow spot ETFs. I have a hunch that once U.S. regulators are full of their policies and treatment for Bitcoin and other digital assets Confidence, this situation will happen in the near to midterm.” He said that in the final analysis, these two products are just financial instruments, and the US Securities and Exchange Commission hopes to have multiple options.

He pointed out that the U.S. Securities and Exchange Commission is unwilling to take risks and said, “They are just unwilling to take any risks. Considering the huge pressure of investors who desire to own spot ETFs in the United States, this is commendable in itself.”

However, not all market participants are optimistic about the SEC’s approach. Marie Tatibouet, chief marketing officer of the cryptocurrency exchange Gate.io, told Cointelegraph, “It took the US Securities and Exchange Commission about four years to figure out how the futures BTC ETF works. It may take two to three years before they can find the spot. ETF.”

Tatibouet said that because BTC futures contracts are not directly linked to the price of Bitcoin, but to the price of Bitcoin futures, its price is “easier” to manipulate than spot prices. This may be a futures ETF approved by the SEC.

Canada supports spot ETFs

Although the launch of Bitcoin futures ETFs in the United States has been celebrated by the community as a watershed in the cryptocurrency asset category, it is not the first country to allow crypto-related ETFs. The friendly neighbor of the United States, Canada, has traded Bitcoin ETFs on various exchanges for most of this year.

Canada Witnessed the launch of the first Bitcoin ETF In North America, the target Bitcoin ETF, in February of this year. This is a physically backed spot Bitcoin ETF that has been successful since its launch. Soon after, Evolve Investments also launched the Evolve Bitcoin ETF, which is also a spot ETF. Purpose Bitcoin ETF and Evolve Bitcoin ETF currently manage USD 1.4 billion and USD 203 million in assets, respectively. The companies behind these ETFs also continue to launch Ether (Ethereum) ETF after the success of its Bitcoin ETF.

related: Why now? The U.S. Securities and Exchange Commission spent eight years authorizing Bitcoin ETFs in the U.S.

Nexos’ Trenchev said: “Canada can be considered the El Salvador of the spot BTC ETF. They have been there for some time and things seem to be solving. It’s always an advantage to have examples for reference – no matter how successful or how much they are Failure-and I am sure this will happen in the U.S. spot ETF.”

Jun noted the differences in the legal environment between the United States and Canada. He said: “Canada’s regulatory environment is more flexible, while Canada is more focused on innovation. It often dared to be at the forefront of financial innovation, such as the first modern ETF in 1990 and 2017. The first launch of a cannabis ETF. But the regulatory environment in the U.S. market is much stricter.”

Legendary trader Peter Brandt (Peter Brandt) puts forward a new view on the matter Twitter Mention how BTC extremists should completely oppose ETFs and spot ETFs.

Whether ETFs will support the long-term growth of BTC as an asset in the way originally expected is still controversial. It is undeniable that the development of encrypted ETFs has a great influence on market sentiment, which will ultimately affect the price of Bitcoin. This is the whole discussion at hand. core.