For a long time now, mutual funds have dominated the cryptocurrency trading market by offering investors professional management, daily liquidity, broad diversification, and relatively low cost. Exchange Traded Funds (ETFs) enhance these benefits even further, and this is one of the main reasons why they are on the rise now more than ever. Most intellectual financial experts agree that the pros of ETFs certainly overshadow the cons by a huge margin.
What are ETFs exactly?
In simple terms, an ETF is a basket of securities you can trade through a broker on a stock exchange. ETFs are offered for investors of stocks, bonds, and commodities and have both the properties of mutual funds and common stock. Bitcoin ETFs were created to offer investors a diversified portfolio of their assets at a relatively low cost and with better transparency concerning where to trade Bitcoin.
Here are some of the benefits of ETFs compared to mutual funds.
- Tax-efficiency: Investors have more control during the payment of capital gains tax
- Higher trading control: ETFs trade over an exchange across the day compared to mutual funds which are only traded once a day at the closing NAV price. This gives traders a better selling/buying control and the power to set stop-loss limits on their trades.
- Zero Investment Minimums: You don’t need a minimum to purchase shares on ETFs- even one share will set the ball rolling for you.
- Lower fees: ETFs have zero sales load except for brokerage commissions
Past Attempts to Approve Bitcoin ETF
The U.S. Securities and Exchange Commission (SEC) has been rejecting bitcoin ETF approvals since 2014 for different reasons.
Direxion and GraniteShares have had five and two ETFs rejected respectively based on the grounds that the organizations putting forth the proposals don’t have the capacities to implement the products.
Winklevoss Twins, founders of the Gemini Exchange, have also made two attempts at ETF approvals but have hit a dead end too. Even worse, they have actually been barred by SEC from ever trying again.
The most recent proposal is one by VanEck which happened late last year but this too didn’t manage to see the light of the day.
Light at the End of the Tunnel
Things are certainly looking up now on the wake of SEC’s big announcement that it is indeed making great strides as far as ETF proposal is concerned. On February 15th, the Commission published a proposal filed by Bitwise Asset Management and NYSE Arca. The decision on whether to approve, refute, or extend the period of the proposal is yet to be made by SEC which it intends to do in 45 days from the day the proposal was published on Fed Register.
Expectedly, the approval process is quite complex. It has to go through a rigorous exercise and face roadblocks before it is unveiled as a bitcoin trading. However, unlike past bitcoin ETF proposals, this one is highly valuable because it focuses on physically settled Bitcoin futures contracts.
John Hyland, Bitwise’s global head of ETFs, is quite confident that this proposal will see the green light. From a statement he recently made concerning the proposal, he said that although there’s no assurance that the proposal will make it through, he is quite optimistic that 2019 is that year when bitcoin ETFs will be launched finally.