The circulation of cryptocurrencies is a sector that is still unregulated in many countries. Nevertheless, according to a number of experts, it is control that will be able to attract big money to the industry and minimize the number of scams. As such, financial instruments are gradually coming to the crypto industry.
On June 1st of this year, Huobi, one of the three largest crypto exchange trading platforms, presented the ETF exchange fund, which constantly monitors the ratio of the 10 main crypto assets and Tether, which is linked to the price of the U.S. dollar.
ETF in the Fiat World
ETF (Exchange Traded Fund) is an investment fund trading with the help of its shares, or assets on exchanges. Their heyday came in the 90s of the XX century. In fact, these funds are hybrid securities, combining the diversification of investment funds and the trading potential of shares. Today, ETFs are one of the most popular instruments of passive investment.
This relatively new, but already widely used financial mechanism, is associated with low-risk investments, since the trader immediately acquires a portfolio with several assets, thereby smoothing the loss of some of its components due to the growth of others.
How Will ETF be Applied in the Crypto Industry?
The ETF phenomenon is still a precedent in the crypto industry, as examples of its use are few in number. There are, however, several ways of exchanging an exchange product for digital assets. You can simply purchase and store cryptocurrencies in order to divide the shares in the future between the parties of the fund.
The precursor of the crypto ETF was the release of Winkdex in 2014. The Tyler and Cameron Winklevoss twins infamous in the crypto industry released a price index for Bitcoin. And in March 2017, they filed an official application with the SEC (Securities and Exchange Commission).
But the most recent undertaking of the twins ended in nothing. The application for the sale of shares of the Winklevoss Bitcoin Trust was rejected, as the regulator noted the immense potential for scams because of lack of control over the industry. At the same time, the SEC left room for high hopes in an explanatory note to the decision, which stated that the cryptocurrency market is still in the embryonic period, and the Commission is open to reviewing its position in this area.
Race for First Place: How Many Times Should Investment Funds Probe the SEC?
The potentially promising sector of crypto ETFs could not but attract new applicants to the SEC, and in the last quarter of 2017, large investment companies, such as VanEck and ProShares submitted their applications, but were rejected.
At the very end of 2017, due to the issuance of CME and CBOE Bitcoin futures, the Commission was simply showered with applications for approval of its products. By January 2018, about 14 such applications had been received. Again, the SEC rejected them all, as the regulator only expressed concern about the lack of tools to evaluate such products. According to them, until legal issues are resolved with manipulation, liquidity, storage, evaluation, and arbitration of crypto assets, this issue will not be considered and all applications will be rejected.
According to crypto evangelists and industry optimists, the SEC's approval of such applications is only a matter of time. The market has long needed the regulation of this sector. Clear regulation will solve the problem with large investors, who are traditionally very wary of everything new and uncontrollable.
"The use of recognized, traditional financial instruments used by investment companies and banks in classical finance in the cryptocurrency sector certainly has a positive impact on the second. This facilitates acceptance and understanding of decentralized instruments by large investors able to pump the market with liquidity and encourage its development," says Pavel Matveev, co-founder of the Wirex crypto bank.
It is worth noting that ETF is a product that has already proved itself in the fiat world as a tool for "lazy" and novice traders. If you are a single trader, already well-versed in cryptocurrencies and are successfully trading independently, and you have for this time, then, most likely, an ETF is not for you. On the other hand, for large investors, newbies, and busy people, the purchase of a crypto ETF in the future can be a very profitable investment.