In February 2019, the market is waiting for a significant event in the appearance of the first Bitcoin ETFs. Despite the general market hype, some experts are not sure that the ETF will have a beneficial effect on the market and may well increase its volatility. We have already written that in the crypto industry, the phenomenon of ETFs is yet undiscovered since examples of its use can be counted by the fingers. But there already are several ways of exchanging an exchange product for digital assets. You can even simply purchase and store the cryptocurrency in order to divide the shares in the future between the parties of the fund. How the emergence of a new instrument could affect the market and what experts have to say about it will be discussed in the article.
Pros and Cons of ETFs
Over the past few months, analysts' attention has been focused on the decision of the Securities and Exchange Commission (SEC) on the topic of Bitcoin ETFs in the cryptocurrency market.
Moreover, according to some experts, the growth of the price of Bitcoin from $7,000 to $8,000 at the beginning of this month may be associated with an increase in the volume of advertising of Bitcoin ETFs. "The failure of the SEC to register the ETF of the Winklevoss brothers probably influenced the market, forcing investors to react to this news," said Brian Kelly, BKCM's CEO.
Some analysts are against the introduction of ETFs. For example, the famous security expert Andreas Antonopoulos said that he was categorically against its implementation in regulated markets.
In his opinion, in spite of the fact that ETFs have the opportunity to provide new perspectives for institutional investors and retail traders who did not have the opportunity to trade cryptocurrency assets due to regulatory problems, they provide a wide field of opportunities for manipulating the price of Bitcoin.
"Everyone is very happy about ETF. What we have seen in other markets when ETFs become available is that the price increases really sharply, because suddenly this product becomes open to a much larger number of investors, and their number increases. But, on the other hand, do not forget that the commodity markets are manipulating the rates of various currencies, and the opening of these ETFs only increases the ability of institutional investors to play with the prices of goods," he added.
The fact that the ETFs of the Chicago Board Options Exchange (CBOE) and VanEck SolidX can bring billions of dollars to the Bitcoin market also means that its price can drastically drop off with great profitability both up and down during the operation of the U.S. stock market if the ETF is approved.
Who Is It Profitable For?
It is worth noting that unlike futures contracts, in the ETF market, investors are motivated to deliberately reduce the price of the world's first cryptocurrency. Nevertheless, if a group of investors decides to use the ETF market for games with Bitcoin prices to consolidate profits in the futures market, the market will become much more volatile.
As for the long-term perspective, since more legitimized investments are introduced with the help of regulated financial institutions, the liquidity of Bitcoin appreciably increases, thus reducing loopholes for manipulating the price.
"In the short term, the growth of the cost of Bitcoin from the resolution of ETF is quite possible. We can look at the price of the main cryptocurrency in November to December 2017. Then, the price also grew in many respects thanks to news about U.S. exchanges and Bitcoin futures. Futures could also allow institutional investors to enter the market, but this was not a mass phenomenon. If we talk about the manipulation of the market, then there is a double picture, as on the one hand, more money will come from large investors and price manipulation can be easier for them, but on the other, the institutional players will need to coordinate actions, otherwise their manipulations can neutralize them own efforts," as commented to DeCenter by Roman Zabuga, official representative of the Wirex crypto bank.
In times of instability, high volatility, and sharp price jumps, public investment funds provide the tools necessary for large investors, which can reverse the main processes taking place in the market.
Interestingly, some experts are sure that the appearance of ETF will cause a sharp jump in volatility in the market. "In general, I believe that the permission for Bitcoin ETFs will positively affect the volatility of the cryptocurrency in the medium and long-term. It is unlikely, however, to attract a significantly larger number of institutional and professional investors to the market. This will rather affect the mood and rhetoric of the authorities and regulators. If they enter the cryptocurrencies market in the legislative field, it can be regarded as a "green light" for investors. And this will serve as a point of departure for the latter," Roman Zabuga concluded.
A similar opinion was expressed to DeCenter by the leading analyst of icopools.io Mikhail Zasidkevich: "Running a Bitcoin ETF on the horizon for up to six months is likely to provoke a wave of manipulation in the market, which will lead to an increase in the prices of cryptocurrencies and increase volatility. Although, in the future, in about two years, the development of financial instruments of institutional players (in the form of Bitcoin ETFs) will lead to increased market liquidity of the cryptocurrencies, and, ultimately, to their greater stability. But do not forget that the Bitcoin ETF is an exclusively financial tool. That is, the stability of prices in the cryptocurrency market and the massive adoption of cryptocurrencies should be primarily influenced by the development of blockchain projects and the increase in the value of cryptocurrencies in various areas of our daily life (finance, medicine, real estate, intellectual property, and other spheres). In the meanwhile, the cryptocurrency market is too young emotionally, and is subject to manipulation."