Cryptocurrencies Don't Need An ETF As Badly As People Think
These days, it seems like nothing gets crypto enthusiasts talking like the possibility of a bitcoin ETF. If cryptocurrency was a gold rush, you’d think ETFs were the shovel. They’re going to take bitcoin “to the moon,” right?
If that were the case, the SEC’s ruling on August 22 to reject 9 ETF proposals would be devastating. While the ruling isn’t terribly surprising, given that the SEC has rejected ETFs in the past, the latest round was notable because the ETFs under consideration were based on bitcoin futures, rather than the actual asset. This would give investors another layer of protection from volatility in the bitcoin spot markets, and would mean that the funds themselves don’t have to directly take on the risks associated with holding cryptocurrency, such as handling cryptographic keys.
Apparently, this wasn’t enough to get the SEC on board, and now it seems likely that a bitcoin ETF is a long way off for American investors. That’s the bad news. The good news is that to see this decision as a reason for despair is to greatly overestimate the importance of ETFs.
To illustrate this, let’s go way back, to about 8700 BC. That’s the estimated date for when humans first used copper. For almost 5,000 years, copper was the only metal humans knew of, and even after the introduction of precious metals such as gold and silver, or metals such as iron for creating tools and weapons, copper has remained an important natural resource all the way up to the present day.
And when was the United States’ first copper ETF launched? 2011. The copper market existed for thousands of years before it had an ETF. It did just fine.
Obviously, bitcoin and copper aren’t the same thing. For one, you can’t fashion tools out of bitcoin. And unlike copper, lines of code are not a resource with constrained supply (though it’s worth noting that bitcoin does have limited supply). The point is simply that an ETF is not crucial for a healthy market. The SEC decision may not have been ideal, but the market will be alright. The technological benefits of cryptocurrency—such as the fast, secure transfer of funds—haven’t gone away. There are already other financial instruments investors can use to get into bitcoin without going through an ETF, such as futures contracts or the recent arrival of a bitcoin ETN on American shores.
In many ways, your outlook on the future of cryptocurrency depends on what you’re hoping to achieve. If your goal is get-rich speculation, and you’re only interested in whether an event will lead to short- and medium-term gains or losses in the price of various cryptocurrencies, then the ETF decision may sting a little more. If, on the other hand, you really believe in the value of blockchain technology and digital assets to improve the financial system, then you have plenty of reasons to be optimistic.
A recent survey by ING found that 25% of Europeans expect to own cryptocurrency at some point, presenting the possibility of a huge increase in adoption from the 9% who own it today. In a recent survey of senior executives, Deloitte found that 84% of respondents either somewhat agree or strongly agree with the statement that “Blockchain technology is broadly scalable and will eventually achieve mainstream adoption.” This sort of adoption isn’t guaranteed to take bitcoin “to the moon,” and that’s okay. When it comes to integrating digital assets with the everyday operations of our financial system, we don’t need sky-high prices; it’s actually stability we want. For those of use who want a stable, sustainable future for digital assets, there is plenty of reason to be optimistic, with or without an ETF.