What is the magic of Bitcoin ETF? Fund tycoon Dan Bin’s purchases helped push it to 400,000 US dollars?

On February 18 this year, Bitcoin once again made history, welcoming the arrival of the world's first Bitcoin ETF (Purpose Bitcoin ETF). On the same day, Dan Bin, a domestic private equity tycoon, admitted for the first time that it is "very likely" that the price of Bitcoin will reach the $400,000 mentioned by the ARK Queen in the future, and has put his cognition into practice by buying 1% of the Bitcoin ETF. Driven by a series of good news, on February 19, the price of Bitcoin hit a historical record, and its market value broke through the trillion-dollar mark for the first time. What is the magic of Bitcoin ETF? What impact will it have on the future development of the Bitcoin market? I hope this article can help you understand these issues.

What is Bitcoin ETF? Why is everyone looking forward to the arrival of Bitcoin ETF?

ETF, the full name of which is Exchange Traded Fund, is an open-end fund with variable fund shares that is traded on an exchange. Unlike ordinary fund products, the price of ETF funds needs to track the price of a certain type of index or asset and is strictly anchored to the price of such index/asset. As the name suggests, Bitcoin ETF is a fund anchored to the price of Bitcoin. Buying/selling Bitcoin ETF means that you can get the same returns as investing in Bitcoin without actually buying or selling Bitcoin. ETF fund managers will purchase the actual assets that are anchored, which also means that once the ETF is passed, there will be a huge new demand for Bitcoin in the market.

Compared with the traditional way of buying coins for investment, Bitcoin ETF has the following advantages:

(1) Convenient and fast purchase. For many new Bitcoin investors, the first difficulty they encounter is not knowing how to buy Bitcoin. Many people back off when they hear that they need to download a special exchange app and learn how to use it to buy Bitcoin. However, there are no such problems when investing in Bitcoin ETFs. As long as you have stock trading software and an account, you can trade Bitcoin as easily as buying and selling stocks. The returns are almost the same as buying Bitcoin directly, and the trading threshold is greatly reduced.

(2) Fund security is guaranteed. In addition to the inconvenience of trading, the second obstacle for novice Bitcoin investors to buy Bitcoin is the concern about the safety of funds. This is understandable. After all, since the birth of cryptocurrency exchanges, there have been various security incidents. In the past few years, there have been endless incidents of investors losing all their money due to accidents such as exchange closures, bosses running away, bizarre deaths, and inexplicable loss of contact. It is obviously unsafe to keep coins on exchanges; but the learning curve for transferring coins from exchanges to their own cold wallets is too steep. Therefore, many investors eventually gave up buying Bitcoin due to security concerns. Bitcoin ETFs can solve these problems. Since ETF funds are subject to strict supervision by securities regulatory authorities, all underlying assets and funds must be placed in custody by a trusted third party, and the risk of assets returning to zero due to fund running away can be minimized.

(3) It is conducive to tax avoidance. Many European and American countries impose high capital gains taxes on cryptocurrency transactions. For tax avoidance purposes, European and American investors generally prefer to trade through specific pension accounts (such as 401k accounts in the United States and TFSA accounts in Canada) because they can avoid or pay less income tax. However, pension accounts have relatively strict restrictions on investment targets, and cryptocurrencies such as Bitcoin are not within the investment scope of pension accounts. Since ETF products (including Bitcoin ETFs) are investable objects of pension accounts, Bitcoin ETFization is very attractive to some European and American investors who prefer to trade to avoid taxes.

(4) Friendly supervision. Since Bitcoin ETF is a formal investment product issued after approval by the securities regulatory authorities, there is no compliance issue for professional institutions to invest in Bitcoin ETF. Previously, because there were no related products, many institutional investors could not directly invest in Bitcoin even if they were optimistic about it. Bitcoin ETF is equivalent to establishing a legal and compliant channel for these institutional investors to invest in Bitcoin. Dan Bin’s ability to buy a large amount of Bitcoin ETF fund shares this time should also be due to the launch of Bitcoin ETF.

2. The past and present of Bitcoin ETF

Because Bitcoin ETF has the advantages of significantly lowering the transaction threshold and reducing transaction costs, when the cryptocurrency market was just beginning to take shape, the industry had already set the establishment of Bitcoin ETF as an important goal for future development, hoping to introduce a huge amount of mainstream funds into the cryptocurrency market. Unfortunately, things don't go as planned, and the development of Bitcoin ETF has not been smooth.

As early as 2013, the Winklevoss brothers had the idea of ​​setting up a Bitcoin ETF and submitted a Bitcoin ETF application to the SEC, hoping to issue an open-ended Bitcoin ETF fund that could be traded on the Nasdaq market, but the application was ultimately rejected by the SEC. In the following seven years, cryptocurrency practitioners, like Sisyphus, continued to fight and failed, submitting more than a dozen ETF applications, all of which failed. The SEC's approval conclusion is that as an investment target, Bitcoin has excessive price fluctuations, lacks supervision, and is easily manipulated, and the time is not yet ripe to set up an ETF.

Although the application for the Bitcoin ETF project has not been smooth, the development of Bitcoin trading infrastructure has not stopped. In other similar ETF products , cryptocurrencies have actually achieved very impressive achievements in recent years.

In September 2013, Grayscale Bitcoin Investment Trust (GBTC) was established. After years of operation, Grayscale has now developed into the world's top cryptocurrency management institution. Its GBTC Trust is the world's largest Bitcoin trust product, with an asset size of up to US$3.88 billion. In November 2018, Europe's first cryptocurrency ETP fund (HODL ETP) was listed on SIX, the largest exchange in Switzerland. So far, Europe has approved dozens of cryptocurrency ETP fund products, with a total asset size of nearly US$500 million. Both Grayscale's GBTC and European ETPs can provide investors with a trading experience and security close to that of Bitcoin ETFs.

Through the smooth operation of Bitcoin ETF products in recent years, the feasibility of Bitcoin ETF has been fully verified. In addition, more and more mainstream financial institutions have gradually recognized the value of Bitcoin and are eager to invest in this market through legal and compliant channels. The development of Bitcoin ETF has finally ushered in the moment of breaking out of the cocoon and becoming a butterfly. On February 18 this year, the world's first Bitcoin ETF Purpose Bitcoin ETF was officially listed and traded on the Toronto Stock Exchange in Canada. Only two days after its launch, the asset management scale (AUM) has reached an astonishing US$422 million. Then on February 19, the Toronto Stock Exchange launched the second Bitcoin ETF product Evolve ETF. It is expected that more Bitcoin ETF funds will be launched in the Canadian market in the future to meet the strong market demand for such products.

3. The future of Bitcoin ETF and its impact on the price of Bitcoin

Regarding the future of Bitcoin ETF, the focus is naturally on the attitude of the US SEC. With the sharp rise in the market value of Bitcoin, mainstream financial institutions have gradually abandoned some of their past prejudices against Bitcoin and turned to accept Bitcoin as a new asset class. Under the new situation, it seems a bit out of place for the SEC to continue to maintain a strict attitude towards Bitcoin ETF. The outside world has also turned from conservative to optimistic about the prospect of Bitcoin ETF passing SEC approval. In a TV interview in January this year, ARK female stock god Cathie Wood predicted that Bitcoin ETF is expected to be approved by the SEC when the market value of Bitcoin is close to US$200 million. "The strong demand of the market must be met," she said.

In addition to the rapidly expanding overall market value and strong market demand, Bitcoin ETF is also expected to receive good news at the level of the head of the SEC. Gary Gensler, the new SEC chairman candidate nominated by the Biden administration, has a deep understanding of cryptocurrencies. As a professor of finance at MIT, he once taught a public course called "Blockchain and Currency." Having an open-minded cryptocurrency person as the chairman of the SEC will undoubtedly further increase the chances of Bitcoin ETF approval. VanEck, a cryptocurrency management company that has failed twice in Bitcoin ETF, submitted its third application for Bitcoin ETF in December last year. As the only Bitcoin ETF project currently under review by the SEC, VanEck's Bitcoin ETF application, once approved, will become the first Bitcoin ETF fund listed and traded on a mainstream exchange on Wall Street, thus officially opening the door to the US $6 trillion fund market.

Interestingly, as early as the beginning of 2018, someone posted on Reddit/Bitcoin to predict the price of Bitcoin after the launch of the ETF. The reference coordinate system at that time was the gold ETF. In March 2003, the first gold ETF GOLD ETF was listed on the Australian Stock Exchange. The gold price at that time was $10796/kg. In the following 7 years, the gold price rose by 454%, eventually reaching a historical high of $59774/kg. Based on this, the poster calculated that if the Bitcoin ETF can also form a similar driving effect, Bitcoin is expected to reach $62,000 in the future. Unfortunately, the Bitcoin ETF was not approved in the end, and the ETF's blessing effect can only remain in imagination. This year, when the price of Bitcoin broke through $50,000, the first Bitcoin ETF was finally listed. In the future, will the Bitcoin ETF be as magical as predicted, boosting Bitcoin to another 450% and reaching the top of the moon at $250,000 or even $400,000? Let time give the answer. (Cover image from Bitcoin.com)