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Research firms estimate implications of Bitcoin ETF approval - or disapproval. Will the Chinese traders be prepared?
Speculation about the Winklevoss twins’ Bitcoin ETF possible regulatory approval continues. On March 11, the US Securities and Exchange Commission should come to its “yes” or “no” verdict after almost four years of waiting.
It may happen by the time two of the world’s top Bitcoin exchanges that are based in China - Huobi and OKCoin - would have resumed their full withdrawal services.
Most commentators are certain that the first Bitcoin exchange traded fund or ETF is not likely to be approved. However, commentaries are still divided over the issue and none of the stakeholders rule out the approval completely. The consequences of a positive decision could be huge.
So if it happens, what would the ETF mean to the market?
Going by notable views at the moment, the chance of the Bitcoin ETF being approved is very slim.
Analyst firm Needham & Company, on Feb. 10, confirmed its prior estimate that it sees a "sub-25 percent" chance of approval for the Winklevoss Bitcoin ETF. But, if approved, it says the ETF would likely attract more than $300 mln into the market in its first week alone.
Willy Woo, a cryptocurrency market analyst, also puts the approval probability at 25 percent and speculates that $500 mln and $1 bln will be injected into the market.
Quantitative analysis and value research firm, Emerita Capital, assigned a probability of 35 percent for approval against 65 percent probability of rejection, making our final average expected price $1645.45 or a +67.8 percent expected return above the current price.
By the time two of the world’s top Bitcoin exchanges - Huobi and OKCoin - would have resumed their full withdrawal services, in about a month of its KYC/AML system upgrade (it could be less), the first US-based Bitcoin ETF could be approved.
According to Spencer Bogart from Needham & Company, this ongoing upgrade is a plus for the approval bid of the Bitcoin ETF as trading is now somewhat more evenly spread geographically worldwide.
However, considering that ETFs have a long history of penetrating new and occasionally untapped investment areas, it’s likely that approval may dawn on Chinese players, unprepared for the first-mover advantage it would bring.
This is crucial, particularly now that the latest reports say the PBoC would be eyeing a tighter monetary policy as China’s inflation measures hit multi-year highs in January, up by 6.9 percent, and the consumer price index rose 2.5 percent.
It should also be considered that Bitcoin transactions in US dollars have spiked of late even before the series of regulatory measures introduced by Chinese exchanges and there has been a relative price stability around the $1000 range even without the full participation of the most popular Chinese exchanges. The early user advantage will sway further to the US dollar transactions at the commencement of the ETF’s operation, though how better the experience gets would determine how long the focus on the market would be.
Shorting Bitcoin is a common practice. With much of the ETF’s operation solely based around Bitcoin, it could either prevent or make it easier for this practice to continue.
It could also affect the price. Needham & Company observe a slight downside in the price of Bitcoin in the event of a disapproval, while Emerita Capital targets a Bitcoin price of $3,678 if the ETF is approved in 2017 and $551 if rejected.
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