September 25, 2020

TOP-4 signs of market readiness for the launch of Bitcoin ETF

TOP-4 signs of market readiness for the launch of Bitcoin ETF

As you know, on September 17, the BZX stock exchange of the Chicago Options Exchange withdrew its offer VanEck / SolidX by bitcoin ETF. This event led to the fact that the main applicant for permission from the SEC dropped out of the race, leaving in doubt the prospect of Bitcoin ETF approval in general.

In this article we will try to explain whyBitcoin ETF time has come. This year, Bitcoin (BTC) as an asset showed itself very well, breaking away from its "lows" and for a long time trading at around $ 10,000.

TOP-4 signs of market readiness for the launch of Bitcoin ETF

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ETFs or stock funds are a set of securities,tied to a specific index. In essence, it is an investment tool that tracks the effectiveness of underlying assets. ETFs can include numerous investment classes, such as stocks, commodities, bonds, or a mix of them. Consequently, ETFs allow investors to diversify their assets without actually owning any assets. Bitcoin ETF simply mimics the price of a cryptocurrency.

So why buy a bitcoin ETF if it just mimics the price of bitcoin? Why not just buy bitcoin yourself and exclude an intermediary?

There are several reasons for this, the main onewhich is that Bitcoin is still a largely unregulated asset, and there are many risks associated with its direct trading. If you invest in bitcoin, you need to store your private keys in a safe place and manage your bitcoin wallet, and this scares off investors. Cryptocurrency space is completely new, there are many changes in it.

A novice investor can also scare offthe need to understand how the cryptocurrency market functions. The learning curve here is very steep, but with the ETF-approved problem will disappear, as investors are familiar with this investment mechanism. As of September 2019, the global ETF market is valued at a whopping $ 3.9 trillion, which is why Bitcoin ETF approval could introduce Bitcoin to a wider audience.

As of September 2019, the Commission forThe US Securities and Exchange Commission (SEC) did not approve the Bitcoin ETF, citing a number of factors, from insignificant futures trading volumes to the possible risk of manipulation and fraud, since most crypto exchanges are unregulated.

There are three reasons why you canAssume the world is ready for Bitcoin ETFs. Please note that all motivations are borrowed from a public presentation provided by the Bitwise Asset Management for SEC. It is noteworthy that on October 13, the deadline expires during which the SEC either approves or rejects the Bitcoin ETF Bitwise.

Reason # 1: Bitcoin spot market has become more efficient

A presentation presented by Bitwise to the SEC shows how the spot market for bitcoin has developed over the past 18 months. Here is a screenshot from the presentation.

TOP-4 signs of market readiness for the launch of Bitcoin ETF

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At the beginning of 2018, a number of keyevents related to the launch of CME Bitcoin futures. BitLicense added requirements for market surveillance for cryptocurrency exchanges, the institutional market for bitcoin landing was launched, and public access to institutional market makers such as Jane Street was opened. These events dramatically increased efficiency by first creating a “dynamic, two-way market for institutional quality,” the report said.

The average spread (spread) for major exchanges withreal volumes are in the range from 0.01 to 0.1%. In addition, arbitration among the leading exchanges is almost perfect, without persistent deviations. This means that the spot market of bitcoin is currently working with much greater efficiency than most other large markets.

Reason # 2: the Bitcoin market is more resistant to market manipulation

Despite the fact that bitcoin was created asP2P payment protocol, it is the first real digital product in the world, and its inherent characteristics such as interchangeability, unhindered transfer and the ability to trade on the stock exchange make it unique compared to traditional products.

In the history of finance, there have been instances of market manipulation resulting from coordinated pricing. However, the price of bitcoin is set in the open market.

In addition, bitcoin interchangeabilityprovides almost perfect arbitrage between different areas of trade. Perhaps this leads to the fact that it is incredibly difficult to manipulate the market, since any attempt requires superiority over most of the world's liquidity.

Reason # 3: The bictoin futures market is quite significant

Bitcoin CME Futures Market Is Muchmore significant than previously thought. The misconception about it is due to the fact that, according to the Bitwise study, 95% of the total spot trading volume of bitcoin is fake.

TOP-4 signs of market readiness for the launch of Bitcoin ETF

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According to the report, the spot trading volume of bitcoinis approximately $ 17 billion (as of August 2019), and the actual trading volume is about $ 1 billion. Futures trading volume is 1/4 of the spot trading volume. In addition, since the beginning of 2019, the futures market has been a significant part of the real bitcoin market.

Reason # 4: Bitcoin storage has become institutionalized

TOP-4 signs of market readiness for the launch of Bitcoin ETF

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The main obstacle to investing in bitcoinreliable storage of private keys due to the anonymous and unchanged nature of the bitcoin network. If a hacker gains access to someone’s private keys and transfers bitcoin somewhere, it will be impossible to return it, unless most of the network agrees to cancel the transaction (which is almost impossible). Custody services are especially useful here.

Over the past two years, most Bitgo repositoriesbecome regulated and insured by companies such as Llyod’s of London, specializing in the insurance market. The amount of insurance coverage is $ 100 million and is provided to customers free of charge.

These are the reasons why the world is ready for Bitcoin ETFs, so most of the SEC concerns have already been removed by themselves.

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