Analysts from prominent financial institutions including Bloomberg believe that the probability of the Winklevoss twins’ Bitcoin ETF COIN being approved is fairly high, due to the unpredictable nature of the US Securities Exchange Commission.
There exist many developing parts to the approval of the COIN ETF. Some of these parts could play a major factor that could encourage the SEC to approve the world’s first Bitcoin ETF and the rest of the moving parts could completely eliminate the possibility of a Bitcoin ETF being introduced to the public.
Based on the SEC’s past decisions and attitude towards innovative ETFs, it is difficult to favor the Winklevoss twins for the approval of their COIN ETF. However, the involvement of a well-respected $30 bln financial institution and the participation of analysts independent of the SEC and the Winklevoss twins, such as quant traders from KCG and Susquehanna, gives hope.
Why analysts believe Bitcoin ETF can be approved
Over the past few years, Bitcoin has been described as digital gold. It is yet to achieve its full technological potential to operate as an efficient and cheap settlement network. Therefore, the vast majority of Bitcoin users as of current are utilizing the Bitcoin network to protect their wealth and to settle large transactions that weren’t previously possible without the presence of a mediator.
As Bloomberg Intelligence Sr. ETF Analyst Eric Balchunas explains, the SEC introduced ETFs in the past which opened up new markets that didn’t generate as much attraction and interest from the industry at the time. An example of such an ETF is the ASHR, which was approved by the SEC before US companies came about to trade.
“The odds for and against are so evenly matched. You’ve got possible regulation, liquidity and security issues, but on the reasons for, ETFs have this long history of opening up new markets. A great example of an ETF that was approved by the SEC is ASHR. That was approved before any US companies had a quota.”
Like Spencer Bogart, vice president of equity research at Needham & Co, mentioned before, the odds against the Bitcoin ETF approval is evenly matched because of the fact that the officials of the SEC who will approve the ETF don’t receive any incentive for the performance of the ETF. But, if the ETF fails and the market destabilizes, the officials who approved the ETF will be made responsible for its downfall.
Until the approval date, Balchunas stated that the probability of the Bitcoin ETF being approved would be at 50 percent. The Bitcoin industry and community are quite optimistic towards the approval of the Bitcoin ETF primarily because of the efforts of the Winklevoss twins in bringing in a reputable financial institution in State Street to essentially operate the ETF and take charge of the auditing process.
One advantage the ETF structure Balchunas sees is its premium on Bitcoin which is significantly cheaper than existing public Bitcoin instruments. As seen in Bitcoin over-the-counter (OTC) market instruments like the Bitcoin Investment Trust (GBTC), Bitcoin in major regulated markets are usually traded with high premiums.
Currently, GBTC is trading at $129 per share, which represents a price of $1,290 for one Bitcoin. In the global market, Bitcoin is being traded at $1,250.
“If it is a little illiquid like high yields, you might trade Bitcoin ETFs with a premium of 1 or 2 percent but that is much better than the OTC market,” added Balchunas.