Bitcoin has been on a rally over the past week, increasing by almost $200, reaching a near all-time high of $1,140 on the most liquid western exchanges. It is just $26 short of breaching all-time high, but will it?
We won’t mention devaluation, but yuan has weakened slightly recently. However, the currency has been fairly stable over the past month, moving within a bounded range, while bitcoin has considerably increased in value in a fairly short period of time. It is unlikely, therefore, yuan is the main cause.
With just two weeks to go, all eyes are on the Securities and Exchange Commission of the United States. They are to make an historical decision on the first of its kind bitcoin ETF.
For three years, they have been unsure on whether to approve or disapprove, but now, a statutory deadline requires a decision by the 11th of March. If no decision, then the ETF is automatically approved.
The next two weeks will, therefore, be critical. If the ETF is approved, whether by active decision or automatically, then bitcoin will announce its arrival to the world. The period immediately after the approval is expected to unleash a trading frenzy.
Spencer Bogart, vice president of equity research for Needham & Co. estimates that $300 million would be invested in its first week. It’s the most anticipated ETF ever, according to ETF focused news-sites. The news, whether approval or rejection, will probably be, or should be, on the front page of New York Times.
For the decision is historical. The first ever decentralized digital currency, issued by code not state or company, backed by the market not legal force, will become available to all in a safe and secure manner.
Non-technical individuals will not need bother with securing private keys, so instead buying into the ETF which has locked, air gapped computers, in different locations. Perhaps, like gold itself, they could or should be in armed guarded iron vaults.
Can it still be stolen? Of course, the Bank of England could technically be robbed too. The probabilities, however, appear low. Nonetheless, it is a high-risk investment and any investor would be made fully aware according to the filed ETF prospectus.
Betting markets seem to think the chances of its approval stand at just 36%. Analysts are stating that if it is approved, price could reach $3,000. 36% of 2,000 is…
If it is rejected, price could fall, perhaps significantly so, but, according to the law, the default is approval. There would need to be a very good reason for its rejection if the SEC is not to be accused of curtailing freedoms. Security might be one, but – iron vaults! Coinbase, for example, has never been hacked because, although it is difficult, it’s not impossible to secure bitcoins.
Bitcoin’s volatility is lower than many other ETFs. Yes, it’s a risky investment, but there are many other ETFs which are even riskier. Sure, bitcoin could split, but, companies split all the time. There might be some bug in the code – and there have been such bugs – but they are quickly fixed because it is just code with price rarely reacting by much, let alone sending it to zero.
Why, then, would it be rejected? Even Gemini’s former lawyer seems to think so because the majority of trading is done in China. That’s no longer the case, but even if it was, the lack of liquidity in western exchanges is due to CFTC’s continued refusal to allow regulated exchanges, such as Coinbase and Gemini, to offer margins and futures. The market needs them, that’s why stocks and FX trading platforms offer margins of, sometime, as high as 2,000x.
Personally, I see no clear reason why it would be rejected, but, I’m often wrong. Everyone else seems to think it will be, so perhaps it will.
Until we know for sure, price will probably continue to go up as the market, until recently, was mainly concerned with China. A potential ETF approval, therefore, is unlikely to have been priced in.
Featured image from Shutterstock.
Last modified: May 21, 2020 10:02 AM