Popular Science | What is Bitcoin ETF and why are so many people looking forward to it?

Tomorrow (August 10), the US SEC will decide whether to approve the applications for the Valkyrie Bitcoin ETF and the VanEck Bitcoin ETF. If approved, they will become the first Bitcoin ETFs approved by the US SEC.

In fact, in the article "In 2019, there are at least 8 major events in the crypto world that still have the opportunity to sweep away the haze brought by 2018", we talked about the US SEC's approval of the Bitcoin ETF as one of the most anticipated things in 2019, but it has not been passed yet. Why is this?

01 What is Bitcoin ETF?

ETF stands for "Exchange-Traded Fund", also known as "Exchange Traded Open-End Index Fund". As an investment product, it has a history of 25 years. As of August 2018, the global ETF asset size has reached 4.8 trillion US dollars, making it a very mature financial derivative.

When you buy an ETF, you are not buying the actual asset, but an index that tracks the prices of multiple assets.

Taking gold ETF as an example, the gold ETF foundation invests most of its funds in gold assets, so the ETF price is closely linked to the gold price. When you buy a gold ETF, it is equivalent to investing in gold. At the same time, ETF can be traded in the stock market, with the characteristics of low investment threshold (only a few hundred yuan can be used for trading), low commission, good liquidity, and simple trading operations.

Bitcoin ETF is based on gold ETF and has similar principles.

02 What does it mean that Bitcoin ETF can pass the US SEC?

If the Bitcoin ETF can pass the review of the US SEC and be officially launched, on the one hand it represents compliance, and it also means that existing investment institutions and individual investors can purchase Bitcoin ETFs directly on the stock exchange, greatly lowering the investment threshold of the crypto market. You do not need to actually purchase and keep Bitcoin assets, and you do not need to bear the risk of key custody.

Simply put, if the Bitcoin ETF can be officially launched, it may become one of the options for institutional and individual asset allocation, attracting considerable incremental funds for the cryptocurrency market; and everyone can imagine what results the increase in entry funds will bring.

Some big names also expressed similar optimism:

• Tim Draper, founder of Draper Fisher Jurvetson: Bitcoin ETF will be approved within one or two years;

• Fundstrat founder Thomas Lee: If the Bitcoin ETF is approved, it will likely bring Bitcoin back to its all-time high.

Therefore, it is not difficult for us to understand why the market is full of expectations for the approval results of the Bitcoin ETF.

However, in a financial market with insufficient funds, the most common problem is insufficient liquidity, which leads to the inability to quickly complete transactions. In addition, due to the small market value, the market price is easy to be manipulated, and the risks such as the imperfect regulation of cryptocurrencies are enough to make many traders and institutional funds hesitate.

The US SEC also issued an open letter for the above reasons and rejected applications for Bitcoin ETFs many times.

03 Conclusion

However, hoping that the US SEC can approve the Bitcoin ETF may be "wishful thinking" for many existing cryptocurrency investors.

Since 2014, when the Winklevoss brothers, owners of the Gemini exchange, first submitted an application to the US SEC, the US SEC has rejected Bitcoin ETF applications more than a dozen times. The reasons are still the reasons mentioned above, such as "market manipulation and fraud, and it is difficult to protect investors and the public interest."

If the US SEC approves the Bitcoin ETF, what impact do you think it will have? Welcome to leave a message in the comment area.