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Investment funds may be the bridge that bring mainstream interest and acceptance to cryptocurrencies.
Let us not forget about the hard fork that gave birth to Ethereum Classic in July 2016 amidst all talk of the looming Bitcoin hard fork. The split between Ethereum and Ethereum Classic was one that was based on differences on immutability.
A lot of people had not thought that ETC would survive for this long or would still be a factor to reckon with nearly two years after the hard fork. As on the writing of this article, ETC has grown to be the fourth-largest currency traded by volume on the Poloniex exchange. It has also more than doubled in value since March 2017.
So, would ETC make for an interesting investment? How about a fund that invested in ETC, has the time for such a fund arrived?
Grayscale’s Ethereum (ETC) Investment Trust (EIT) will allow investors to profit from the price movements in ETC. In an investment thesis published by the company, they explain in great detail points regarding the investability of ETC.
The great emphasis in the paper is on the immutability of ETC-making it a medium that is similar to Bitcoin, which is also sometimes termed as digital gold.
Grayscale says in their thesis:
“We’ve identified two possible drivers of alpha for Ethereum Classic and ETC. First, ETC possesses store-of-value properties similar to precious metals and Bitcoin, giving it credence as an inflation hedge over long-term investment horizons.” Secondary stress is on the fact that ETC has real world application. They state, “Second, as the digital token that runs Ethereum Classic smart contracts, ETC can become the scarce commodity that powers a universally scalable Internet of Things.”
Ethereum Classic adopted a new monetary policy that reduced the block reward by 20 percent at block number 5,000,000 and proposes to reduce it by 20 percent every 5,000,000 blocks.
It is not expected that the total supply of ETC will be capped at 210 mln ETC but will not exceed 230 mln ETC.
This sort of ‘scarcity’ is similar to Bitcoin but unlike Ether (ETH) whose issuance grows by a fixed amount each year.
Grayscale are going ahead with the launch of their Ethereum (ETC) Investment Trust, now that there is clarity on the monetary policy question according to Barry Silbert, Founder and CEO of Digital Currency Group which owns Grayscale.
Cryptocurrency funds are coming into vogue. Grayscale has plans for the Bitcoin Investment Trust (BIT), whose registration statement has been filed with the Securities and Exchange Commission (SEC).
Then there was the attempt in March 2017 by Winklevoss brothers to get their Bitcoin ETC approved by the SEC. The rejection of that ETF also led to a fall in Bitcoin prices. However, unlike the Winklevoss Bitcoin ETF or Grayscale’s own BIT, the EIT is a private investment vehicle.
Barry Silbert, CEO of Grayscale, reveals in an email to Cointelegraph:
“We may one day seek to have the ETC fund publicly quoted on the OTCQX market, like the Bitcoin Investment Trust, but at launch, it will not be traded publicly.”
As for what kind of an investor would be interested in EIT, Barry writes, “We believe that there is significant demand from investors to invest in vehicles that handle the purchase and custody of digital currencies and are seeing growing interest in ETC from these types of investors.”
Mainstream investment vehicles that will allow people to invest in cryptocurrencies can act as a shot in the arm for these markets. These vehicles, if they are publically traded, will open the doors for investments in cryptocurrencies by retirement funds, entities both private and public and of course the members of the public.
The key though is securing regulatory approval. In the rejection of the Winklevoss ETF, the SEC observed:
“The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (“ETPs”) must, in addition to other applicable requirements, satisfy two requirements that are dispositive in this matter. First, the exchange must have surveillance sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated.”
The SEC won’t approve cryptocurrency funds because the markets are supposedly unregulated and cryptocurrencies like ETC believe that code is law. The need then is for finding a sensible middle ground.
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