One thing is certain; digital cryptocurrencies, and particularly Bitcoin, are here to stay. However, there’s one complex issue that is also likely to hang around for a while yet – the fact that regulators in the US and elsewhere won’t accept Bitcoin exchange-traded funds (or ETFs). It also looks like those regulators are still going to take some convincing, especially as many banks have yet to acknowledge the rise of digital currencies. However, that’s the problem – the banks won’t embrace Bitcoin until the regulators do, and vice versa.
What could change?
The current situation in terms of Bitcoin is that no two regulators see cryptocurrencies in the same way. Whilst the IRS view it as a form of property, the FinCEN see it as a virtual currency. Other state regulators in the US view it with even more suspicion, as a vehicle for moving money around. For something that is still so new in terms of digital currency, that’s perhaps not surprising. However, it is worrying that two applications for Bitcoin-backed ETFs have been rejected so far, including the Winklevoss Bitcoin ETF.
The small ray of hope is that ETFs aren’t the only means for the public to invest; it’s entirely likely that Bitcoin could find itself traded in terms of futures contracts, especially as the Commodity Futures Trading Commission already views Bitcoin as a commodity.
Overseas, the situation is more encouraging, with regulators including those in Jersey and Japan being more open to innovations in digital currency. For example, although there are exchange-traded Bitcoin products in these markets, they are exchange-traded notes; a product issued by an underwriting bank, and backed only on the credit status of the issuer. The distinction is an important one, but it does show a willingness to look at cryptocurrencies favourably.
It’s not surprising that US regulators want to see more stability from digital currency before they approve it – after all, Bitcoin is still less than a decade old, and still viewed with suspicion by those who don’t understand how a currency that doesn’t physically exist can work. However, as mentioned above, the perception of it as a future might be useful for bringing about that understanding.
For example, comparing Bitcoin to commodities can be quite useful, as in terms of market movement, they behave in a not dissimilar way, especially as the Winklevoss Bitcoin ETF is going to appeal. Additionally, another cryptocurrency – Ethereum – has also made an ETF application, which is currently under review.
It’s entirely possible that pressure from the markets will eventually overcome the necessary caution, especially as the potential gains from the rises in cryptocurrency value are enticing for even otherwise timid investors.
To put those gains into some perspective, it’s worth bringing the comparison back to commodities. The first gold ETFs have only been around for just over a decade, but the very first brought around $40 million to the market every day for the first 30 days. The estimate is that the first cryptocurrency ETF could top $300 million.