Why are regulators avoiding Bitcoin ETFs and what are the chances of approval in 2021?
Investors and fund managers are eager for the approval of the Bitcoin ETF by the US Securities and Exchange Commission (SEC), but it is not yet clear when this will actually happen.
Why bitcoin ETFs are needed
ETFs are securities linked to an underlying asset or group of assets that can be bought and sold to other shares. A financial tool that tracks the efficiency of using the Bitcoin cryptocurrency.
Bitcoin ETFs will make it easier to invest in cryptocurrency for the following reasons. First of all, there have been cases where investors have lost access to their cryptocurrency assets because they forgot their passwords (sometimes with millions of dollars in the account).
According to Chainalysis, a cryptocurrency research and software development company, about 18% of all BTC has been either lost or blocked in an inaccessible wallet.
Second, ETFs can be traded directly from existing brokerage accounts. Thus, investing in Bitcoin ETFs would eliminate the need for market participants to explore new (and potentially complex) platforms for trading cryptocurrency.
What are the chances of approval in 2021
Bitcoin ETFs’ proposals have been coming in since 2013, but so far none have been approved in the United States. Current Bitcoin ETF contenders awaiting SEC approval include Fidelity, WisdomTree, VanEck, and others.
The Commission justifies its unfriendliness with concerns about potential manipulations and fraud that may arise after the approval of the financial instrument.
Many thought that the newly elected chairman of the Securities and Exchange Commission, Gary Gensler, would be a game-changer given his past experience teaching a cryptocurrency course at MIT. However, he turned out to be more cautious than many had assumed, saying that Bitcoin needed more government control.
While in Gensler’s opinion “there are many challenges and gaps when it comes to investor protection in crypto markets,” SEC Commissioner Esther Pierce wonders why Bitcoin ETFs have not yet been approved. According to Pierce, the crypto market today is pretty much an established market, in which both institutional and retail investors participate.
Thus, the chances of Bitcoin ETFs’ approval are growing this year, followed by investor interest. Companies are lining up outside the SEC, regardless of the regulator’s messages.
According to industry experts, the reason for this behavior is simple: they hedge their risks.
ETF issuers know that there is significant demand among investors for this financial instrument. Because of this, regardless of the current position of the SEC, any issuer that wants to have at least some chance of being competitive in the Bitcoin ETF market must challenge the regulator now.
Further growth in demand will mean that competition is likely to be fierce as old investment firms, existing ETF issuers, and cryptocurrency-focused fintech companies burst into the market.
As for the ETFs themselves, most of them are roughly the same in structure, which means that the quality of individual filings now matters less than the overall regulatory approach of the SEC.
However, it should be noted that not everyone shares the views of the United States. Earlier this year, Canada approved its first Bitcoin ETF, later Brazil joined it.
There is an opinion that with an increase in the number of countries in favor, the SEC may lose the ability to lead in this area, which will lower the bar of the regulator’s requirements in relation to bitcoin ETFs and, as a result, lead to the legalization of the financial instrument.