The rising tide for cryptocurrencies like bitcoin, Ethereum and Ripple have lately shaken the investing world. Among the lot, bitcoin has been firing on all cylinders since the beginning of 2017, having hit a series record highs. In three months, the price of the digital currency has surged about 94%.
Investors should note that cryptocurrency and bitcoins are ‘mined’ by using a greater amount of computer processing power. However, since there is a fixed amount of bitcoins, as the limit is reached, it becomes hard to ‘mine’ for the coins. The best part of this system is that it is beyond the reach of central banks.
The currency is in the limelight probably because of the fact that “bitcoin isn’t regulated by any government and has been used by consumers worldwide to shelter assets from inflation or political upheavals in their home countries.” As per an article published on CNBC, bitcoin is emerging as a safe haven asset like gold.
Needless to say, amid a sky-high price rise, the digital currency is gaining favor from ETF issuers, though the SEC is no quite happy with the concept. After rejecting the filing for an ETF on this cryptocurrency by Winklevoss Bitcoin Trust, the SEC is reviewing its decision once again.
The SEC is seemingly looking for more proof of safety in this trade. Meanwhile, some more ETF issuers have lined up to seek regulatory approval with their bitcoin-related products.
Inside New Filings
Investment firm VanEck filed for an exchange-traded fund to invest in bitcoin derivatives in mid-August. Though VanEck acknowledged the riskiness of the product and believes that this digital currency is no match to gold as far as safe-haven status is concerned, the issuer could not overlook bitcoin’s monumental craze.
VanEck noted that the digital currency cannot even replace the necessity of the dollar, rather it is likely to end up in carving a place for itself as a niche product. VanEck’s proposed product will invest in certain Bitcoin Instruments through the Subsidiary and the investment in that subsidiary is likely to be limited to 25% of the portfolio, thus meaningfully lowering the risks.
After VanEck, ETF Firm REX also planned a new fund that will invest in bitcoin-based derivatives. There are two products filed by REX, namely REX Bitcoin Strategy ETF and REX Short Bitcoin Strategy ETF. The ticker codes and expense ratios of those funds are yet to be disclosed.
As per the filing, the long fund “seeks to achieve its investment objective, under normal circumstances, by obtaining investment exposure to an actively managed portfolio of financial instruments providing long exposure to movements in the value of bitcoin, together with an actively managed portfolio of fixed income instruments” while the short fund is intended to offer the negative exposure of the same asset.
What Lies Ahead?
The tussle between the U.S. Securities Exchange Commission and Winklevoss over the launch has been going on for about three years. In fact, the issuer has restructured the proposal for the Bitcoin ETF multiple times.
However, it looks like that the SEC may approve a fund in the coming days given rising pressure from issuers. Plus, the Russian government is also expected to make cryptocurrencies legal financial instruments in 2018, as per the source. Minneapolis Fed President Neel Kashkari pointed to the strength of the blockchain technology supporting bitcoin.
Among other interested candidates, the Chicago Board Options Exchange (CBOE) has teamed up with Gemini, the bitcoin exchange backed by investors Cameron and Tyler Winklevoss, in order to launch cryptocurrency derivatives trading.
Bitcoin’s Impact on the ETF World?
While it is still unclear if we will get a bitcoin ETF soon, the sheer success of the cryptocurrencies should benefit semiconductor ETFs like iShares PHLX Semiconductor ETF (NASDAQ:SOXX) and VanEck Vectors Semiconductor ETF (MUTF:SMH). This is because mining of cryptocurrencies needs the usage of semiconductors. A hardware known as an ASIC (Application-Specific Integrated Circuit) is designed explicitly for mining bitcoin.
As per Bloomberg, there was a 10-fold rise from April to June in the Ethereum market which helped shares of Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD) substantially.
On the other hand, since some view the currency as “digital gold,” bitcoin trading may snatch some buyers from SPDR Gold Trust (NYSEARCA:GLD). Bitcoin’s un-correlated nature to the other asset classes and strong momentum may hurt GLD in the current scenario.
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