The Bitcoin ETF: Is it Already In the Bag?

On March 11 it will become clear if the Bitcoin ETF COIN will be allowed to be traded on exchanges. On this date, years of waiting for a decision comes to an end. Let us have a look, how good chances for approval are, and what the rumors and speculations say.

For Bitcoin, an ETF would be a milestone. Such an asset, covered by real bitcoins, would enable institutional investors to invest in bitcoin. Currently, only investors in Sweden and Germany can invest in a Bitcoin ETN, which differs from an ETF by the fact that full coverage is not a legal requirement. An ETF, traded on US exchanges, backed by law and bitcoins, would be a game changer.

On March 11, we will see if the ETF becomes a reality. The Winklevoss twins have been working on the ETF with the title ‘COIN’ since mid-2013. After several rounds of comments and corrections, the SEC has now reached the last episode of the process. If it does not block the ETF, it will be allowed on March 11. And after all, what is told, chances are not that bad that Tyler and Cameron Winklevoss get what they want.

First, it is seen positive that the SEC met on February 14 both with the Winklevoss-twins and their team as with so-called “authorized partners” (AP). The AP play an important role in the creation and redemption of an ETF; they provide liquidity to the markets and have the exclusive right to change the supply of the shares. For the Bitcoin ETF, the Winklevoss twins appointed as AP the trading company Susquehanna, the broker Convergex and the ETF Liquidity Provider KCK. After the meeting with the SEC, only a few minor changes have been added to the application of the ETF.

As the strongest signal for an approval of COIN, however, stands the price of bitcoin itself. Still on February 14 the price broke the $1,000 mark, and increased to a fresh all-time high just below $1,300 on March 3. Is it possible that the AP bought bitcoin on the exchanges, to be able to provide liquidity and to create enough shares to satisfy the demand?

Maybe even more important are the people who decide on the approval. If an ETF gets approval from the SEC does not depend on political committees, but on two people; the Chairman of the SEC, Michael Piwowar, and the Commissioner, Kara Stein. In a speech in 2015, Stein presented her attitude toward innovation, the blockchain, and the ETF. The increasingly popular ETF should be better regulated, maybe with a new set of rules. But her mission, so Stein, is to help innovations, like the blockchain, to succeed on the markets.

More important as Stein, however, will be the decision of Piwowar, the chairman of the SEC. Piwowar began his career as a scientist in economics. Since 2009 he has been a consultant for the US government. On behalf of Republican senators, he co-worked with Kara Stone – which was engaged by Democratic senators – to write the Dodd-Frank Act, the most significant change in financial regulations since the Great Depression. Following Dodd-Frank, Piwowar became commissioner of the SEC under Obama and was recently made chairman by Trump. In a speech Piwowar explained, that his mission was the core mission of the SEC; protect investors, maintain fairly efficient markets and support the formation of capital.

You could say, that a Bitcoin ETF does exactly serve these goals. If investors want to put money in bitcoin, they can. But without a well-regulated instrument like an ETF they need to use unsecure exchanges and save bitcoin on unregulated online wallets or their own. This is without doubt possible, but it is way more complicated and risky as buying a regulated product like shares in an ETF on the familiar trading interface which is also used to buy shares and securities and so on. If Piwowar and Stein do also see it this way – this question will at the latest be answered on March 11.