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- According to statistics, Bitcoin (BTC) has been on an incredible price run since the US Securities and Exchange Commission approved ProShares’ Bitcoin futures exchange-traded fund
- An ETF is a security class that follows an asset or a basket of assets, in this instance Bitcoin, and may be traded like any other stock on a stock market
- It’s possible that by rejecting VanEck’s spot ETF, financial authorities in the United States have released a riskier product on the same investors it’s supposed to safeguard, because it allows institutional Wall Street money to leverage Bitcoin’s price swings
According to statistics, Bitcoin (BTC) has been on an incredible price run since the US Securities and Exchange Commission approved ProShares’ Bitcoin futures exchange-traded fund (ETF) early in October, reaching a new all-time high of almost $69,000 on November 10.
However, on November 12, banking regulators sour the atmosphere by rejecting VanEck’s application for a spot ETF, causing the flagship cryptocurrency’s price to plummet to a 30-day low of $55,705 on Nov. 19. At the time of writing, the token was trading in the $56,000 level.
An ETF is a security class that follows an asset or a basket of assets, in this instance Bitcoin, and may be traded like any other stock on a stock market. After more than 20 applications, Proshares’ BTC ETF was the first to be approved by the Securities and Exchange Commission (SEC). The difference between the authorised Bitcoin ETFs that are presently trading on Nasdaq and CBOE and VanEck’s rejected Bitcoin ETF is that VanEck’s ETF proposal was for a spot ETF, whereas the approved ETFs are all futures-based ETFs.
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They feel that investors should be able to get BTC exposure through a regulated fund and that a non-futures ETF structure is the best strategy, Van Eck tweeted, arguing that a spot ETF is the better option. Gary Gensler, the chairman of the Securities and Exchange Commission, has previously expressed his support for futures-based BTC ETFs over price-based BTC ETFs. The SEC stated in its final judgement to deny VanEck’s ETF application that the product did not fulfil the criterion that national securities exchange standards be ‘designed to prohibit fraudulent and deceptive conduct and practises’ and ‘to safeguard investors and the public interest.
However, it’s possible that by rejecting VanEck’s spot ETF, financial authorities in the United States have released a riskier product on the same investors it’s supposed to safeguard, because it allows institutional Wall Street money to leverage Bitcoin’s price swings.
A futures contract binds the holder or buyer to acquire the underlying asset and the writer or seller to sell and deliver the item at a defined price on a specified future date unless the holder cancels their position before the expiry date.
These financial instruments, when combined with options, are frequently used to hedge other holdings in an investor’s portfolio or to benefit from pure speculation without having to acquire the underlying asset. These markets are often controlled by institutional investors with large pockets to protect their portfolio against losses.
Although futures can be used exclusively to reduce risk in an investor’s portfolio, the use of leverage in futures markets makes them riskier. The capacity to employ borrowed cash and/or debt as trading capital in the market to increase the profits on a position is known as leverage. Essentially, it allows investors to double their purchasing power in the markets.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
