We believe a crypto ETF will drive the next bull market, and the differentiated and pending VanEck application has the best potential for approval since it is based upon physical Bitcoin and is focused on institutional clients, unlike all past denied ETFs. The SEC on September 20, 2018 that it is seeking public comment on the ETF, as such the original September 30, 2018 decision date will likely be delayed into 2019. We put VanEck’s approval at 50% over the next 12-18 months.
With over $5T in assets, if global ETFs were to allocate 1% of their holdings to Crypto ETFs as an uncorrelated asset and as a store of value, this would amount to inflows of ~$50B, or half of Bitcoins’ current market cap. This would drive multiple increases in Bitcoin’s value in our opinion, and impact increases dramatically as Global ETF allocation increases, which we detail. A Bitcoin ETF is a preface to broader crypto ETFs, and is positive for the entire space as funds would also flow from Bitcoin to other crypto projects.
We believe a crypto ETF will come before viral decentralized applications and mass traditional hedge fund involvement. This is because Crypto ETFs are further along, the infrastructure to support viral DApps is still being built (Bitcoin’s Lightning, Ethereum with sharding, etc). It is also much easier for crypto-accustomed consumers (space is 90%+ retail) to point and click to purchase a crypto ETF versus traditional funds mass which would require complex and circular discussions around valuation in front of an investment board.
We believe in the future crypto ETF managers will be forced to differentiate beyond costs; on how they handle crypto events such as forks, voting and airdrops in an active manner due to the nature of the space. A future could also involve automated ETFs built as smart contracts that adhere to coded rules with little to no costs.
VanEck ETF Has The Best Chance Of Being Approved
The SEC has taken a hard stance on crypto ETFs, most recently denying nine separate applications in late August by three different parties (GraniteShares, ProShares, Direxion) after denying the high profile filing in late June by the Winklevoss Twins who own crypto exchange Gemini. The nine denied ETF’s were based on bitcoin futures markets, which the SEC argued is currently too small and doesn’t have protections in place to prevent manipulative practices.
We believe the VanEck ETF has the best chance of ultimately being approved following the SEC’s recent comment period. Unlike the denied filings based on futures, VanEck’s ETF is based upon actually holding the underlying Bitcoin. This is possible as custody offerings are gaining momentum which were not available in the past; leading earlier applicants to base their ETFs on futures. The SEC’s comment period will likely take several months, as such we expect an approval would not be until 1H19 at the earliest.
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Tom Shaughnessy owns Ethereum. By reading this post you agree to 51percent Crypto Research’s Terms and Conditions. This report is solely informational and is not investment advice.
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