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Alex Kimani

Alex Kimani

Writer, Divergente Research LLC

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

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The First Bitcoin ETF Might Be Just Months Away

Market

In March 2017, the SEC dealt a blow to the bitcoin community when it rejected a proposed bitcoin ETF by the Winklevoss twins. Crypto bugs were disappointed mainly because an ETF would have been an ideal way to lend credence to the cryptocurrency industry and also inject institutional capital into the game.

Based on the conditions the SEC laid down for a crypto ETF to even be considered, it looked like it would be years before such a tool would stand a chance.

But much has changed since then, and a bitcoin ETF no longer looks like such a long shot. In fact, the world’s first bitcoin ETF could become reality in a matter of months, according to Bitcoinist.com.

Although the Winklevoss ETF was the most publicized, in reality, there were about a dozen other applications at the time. Two of those were by Van Eck, a global money manager fund, and SolidX, a crypto startup. After several more failed attempts at trying to convince SEC to change its mind, the Van Eck and SolidX finally decided to join forces and launch a joint ETF.

According to the pair, the proposed ETF will be physically backed by real bitcoins (unlike bitcoin futures, which are cash-settled) and will be insured against loss of theft (to the tune of $25 million for primary coverage and $100 million in excess coverage). Under the new arrangement, Van Eck will market the ETF, while SolidX will act as the sponsor. Related: UK Regulators Hit Facebook With £500,000 Fine

So far, the ETF appears to check off at least one of the items of concern that the SEC had raised when giving reasons for its rejection of the Winklevoss ETF. The SEC ruled that the Winklevoss application for a rule change failed to comply with part of the Exchange Act, which requires, among other things:

“that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest. 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.”

By backing up the SolidX ETF with real bitcoins and even insuring the product, the ETF at the very least reassures the SEC that investors’ and public interest are protected. That is possibly the reason why the SEC has gone a step further with this ETF than it did with the Winklevoss one—by inviting the public to give their views on the matter.

The SEC has taken the bait this time around, but a new twist might eventually persuade it to go the whole hog and swallow hook, line and sinker.

None other than the CBOE (Chicago Board Options Exchange) Global Markets, the world’s biggest options exchange, has written to the SEC proposing to facilitate the buying and selling of SolidX shares, valued at 25 bitcoin. Accredited investors will be able to trade the bitcoin ETF in baskets of 5 SolidX shares.

Now, buying a single SolidX ETF would mean shelling out an amount at least equal to 25 bitcoin, worth about $153,000 at current bitcoin price of $6,120. Five SolidX shares would then go for a cool $765,000, which all but removes it from the league of the average retail investor (which the SEC is mostly concerned about protecting).

By blatantly overpricing the proposed ETF and virtually removing small-time investors from the picture, VanEck, SolidX and CBOE have probably just increased chances of gaining SEC approval by a factor of several multiples.

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So how soon can we expect a response by the SEC? CBOE filed for a proposed rule change on June 26, with page 51 of the document reading:

“Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding[…]”

So SEC’s earliest decision could arrive on August 10, with a 45-day extension pushing it to September 24. On its part, CBOE is confident that an approval will come in 2019.

By Alex Kimani for Safehaven.com

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