VanEck’s Bitcoin Spot ETF Shunt strengthens the SEC’s outlook on crypto

Bitcoin (BTC) has seen a formidable rally since the US Securities and Exchange Commission announced the approval of ProShares’ Bitcoin Futures Exchange Traded Fund (ETF) in early October, reaching levels of its all-time high on November 10th over $ 69,000. according to TradingView.

However, financial regulators have turned the mood down by rejecting VanEck’s proposal for a spot ETF on November 12, which acted as the price trigger for the leading cryptocurrency, falling to a 30-day low of $ 55,705 on November 19, 56,000 US dollars at the time of going to press.

An ETF is a layer of security that tracks an asset or basket of assets, in this case Bitcoin, that can be traded on an exchange like any other type of stock. Proshares BTC ETF is the first ETF to receive SEC approval after filing more than 20 filings with financial regulators in the past.

Jan van Eck, CEO of VanEck, is unhappy about his company’s rejection of the ETF.

https://twitter.com/JanvanEck3/status/1459207777239375878?ref_src=twsrc%5Etfw” target=”_blank” rel=”nofollow noopener

The difference between the approved Bitcoin ETF trade currently traded on various US exchanges like Nasdaq or CBOE and VanEck’s rejected Bitcoin ETF is VanEck’s ETF proposal for a spot ETF and approved ETFs are all on futures based ETFs.

Van Eck says that a spot ETF is the better option tweets, “We believe that investors should be able to access #BTC through a managed fund and that an ETF structure with no future is the superior approach.”

SEC chairman Gary Gensler previously expressed support for BTC ETFs, which are futures rather than price based. In its decision to formally reject VanEck’s ETF application, the SEC stated that the product did not meet the requirement “that the rules of a national exchange are designed to prevent acts and practices of fraud and manipulation” and “investors and the public. Interest.'”

Futures are usually a higher risk product

However, it is possible that by rejecting VanEck’s spot ETF, the US financial regulators may have launched a risky product for the same investors they want to protect, as it allows Wall Street crypto institutions to buy from to benefit from Bitcoin’s price fluctuations.

A futures contract obliges the holder or buyer of the contract to buy the underlying asset and the writer or seller of the contract an obligation to sell and deliver the asset at a specified price on a specified date in the future closes their position before the expiration date.

In combination with options, these financial instruments are often used to hedge other positions in an investor’s portfolio or to benefit from pure speculation without buying the underlying asset. These markets are often dominated by institutional investors who have deep pockets to cushion losses in their portfolios.

While futures contracts can only be used to reduce risk in terms of an investor’s profile, the use of leverage is in the futures markets, where they are at greater risk. Leverage is the ability to use leverage and / or leverage as business capital in the market to increase profit from a position. It is mainly used by investors to increase their purchasing power in the market many times over.

Related: Inflationary winds from around the world mean a big turnaround for Bitcoin

There is also leverage in the spot market, but its influence is significantly less. With futures, however, leverage can be as high as 95%, which means that an investor can easily buy an options contract with 5% of the required capital and borrow the rest. This means that any small movement in the price of the underlying asset will have a major impact on the contract, which will result in an investor’s margin being forced to liquidate the futures contract.

A margin call is a situation in which the margin value of an investor falls below the level required by the exchange or broker. This requires investors to deposit an amount known as the maintenance margin into the account in order to replenish it to the minimum allowed. It can also result in investors having to sell other assets in their portfolio to offset that amount.

It is important to note that the risks associated with futures have nothing to do with the nature of the underlying products, but rather with the methodology by which futures are traded in the markets. Du Jun, co-founder of the Huobi World wide crypto exchange, spoke to Cointelegraph about the SEC’s decision:

“Given the current situation, ETF futures could be the best SEC-approved option. It is true that ETF futures are often complex with a higher risk, but ETF futures have a number of characteristics that meet the requirements of the SEC. “

Jun believes regulators have yet to work out a process for setting the spot price of BTC, leading them to believe that the price can be easily manipulated so that ETF futures are directly segregated from BTC.

In addition, ETF futures offer investors the option of buying both long and short in Bitcoin, thus protecting their BTC assets instead of holding shares with physically deposited BTC.

Antoni Trenchev, co-founder of the crypto trading platform Nexo, told Cointelegraph: “The SEC doesn’t seem ready to approve spot ETFs yet. I have an inkling that this will happen in the near to medium term once US regulators are convinced of their policies and how they handle Bitcoin and other digital assets. Ultimately, both products are just financial instruments, he said, and the SEC will want a variety of options.

Noting that the SEC is reluctant to take risks, he said, “They are simply unwilling to take risks, which in itself is laudable given the high pressure from investors. Investors are eager to have a spot ETF in the US . “

However, not all market participants are positive about the SEC’s approach. Marie Tatibouet, Chief Marketing Officer of the Gate.io crypto exchange, told Cointelegraph: “It took the US SEC about four years to figure out how BTC futures ETFs work. It will likely be another two to three years before they find ETFs. “

Tatibouet said that since BTC futures are not directly related to the price of Bitcoin, but rather to the price of Bitcoin futures, their price is “easier to manipulate” than the spot price, which could be one of the reasons SEC- ETF futures are approved.

Canada supports spot ETFs

While the launch of a Bitcoin futures ETF in the US has been hailed by the community as a turning point for the crypto asset class, it is not the first country to allow crypto-related ETFs. The friendly neighbor of the United States, Canada, trades Bitcoin ETFs on various exchanges for most of the year.

In Canada, the first Bitcoin ETF in North America, the Reason Bitcoin ETF, was launched in February of this year. This is a physically backed up Bitcoin ETF that has been a hit since its inception. Shortly thereafter, Evolve Investments also launched the Evolve Bitcoin ETF, which is also a spot ETF. The Intent Bitcoin ETF and Evolve Bitcoin ETF currently have $ 1.4 billion and $ 203 million of assets under management, respectively. The companies behind these ETFs have continued to launch Ether (ETH) -based ETFs following the success of their Bitcoin ETFs.

Relatives: Why now? It took the SEC eight years to license a Bitcoin ETF in the United States

Nexos’ Trenchev said, “Canada can be seen as the El Salvador of BTC spot ETFs. They have been available there for a while and everything seems to be going well. It is always beneficial to look at examples – no matter how successful or unsuccessful they are – and I am sure that this will be the case with ETFs in the US. “

Noticing the difference in the regulatory landscape in the United States and Canada, Jun said, “Canada’s regulatory landscape is more flexible and Canada is more focused on innovation. It often dares to be at the forefront of financial innovation, like the first modern ETFs in 1990 and the first launch of the cannabis ETF in 2017. But the regulatory environment for the US market is much stricter. ”

Legendary trader Peter Brandt offers a new perspective on the matter Twitter mentions that BTC maximalists should reject ETFs and watch ETFs altogether.

https://twitter.com/PeterLBrandt/status/1459576649981194243?ref_src=twsrc%5Etfw” target=”_blank” rel=”nofollow noopener

It is questionable whether an ETF will support the growth of BTC as an asset in the long-term in the way originally intended and it cannot be denied that the development of a crypto ETF will have a major impact on market sentiment and thus ultimately on the Bitcoin price. is the focus of the entire discussion.