The Securities and Exchange Commission (SEC) is most likely to take a decision on the question of allowing exchange traded fund (ETF) in cryptocurrency. The agency has been showing reluctance until now to allow the instrument in the United States. However, the digital currency associated with ETF is gaining ground in places like Singapore or Asia and Europe. That is obviously driving the regulator to move closer towards possible approval of it after the agency has termed virtual currency as security.
Tracking of Assets Basket
An ETF is nothing but a basket of assets or index, which represents proportionately in the fund’s shares. For passive investment, ETFs are one of the big conventional tools since it reduces the risk compared to investing in any particular digital coin or tokens. A number of people in the fintech sector looking for crypto ETFs as they see it a milestone for mass adoption. That would also widen the scope of digital currency players who are eager to tap the virtual asset wealth. This would also help investors who are cautious on the emerging sector.
The advantage of investing in Crypto ETF is that it is considered a fairly established instrument primarily because of lower risks involved in it. This is quite evident when an investor acquires a basket of assets they are protected from the ups and downs of a single virtual currency, which might react to any event either in favor or against. Significantly, losses from underperforming assets would get compensated from gains of those digital currencies that see a quicker growth.
Aside from that, the overall growth of the virtual currency market or any industries or indices also matters for the increase in value over a period of time. There is every possibility that a carefully selected collection could emerge as a winning ETF as showcased by Warren Buffett in the past. It seems there are two types of ETFs. While a product could be tied to digital assets, another model owns ETF with bitcoin futures.
For quite some time, the bitcoin-associated financial instrument is available in the United States. For instance, Grayscale run Bitcoin Investment Trust held approximately 175,000 bitcoins under the ticker GBTC at the end of February. Since the SEC has not registered GBTC under the investment company act of 1940, it failed to qualify as an ETF. Similar was the case in respect of some altcoins related trusts.
However, these products were not listed on conventional exchanges and available through over the counter exchange. Cointelegraph reported that there could be alternative platforms in which regulations are not that stringent. As a result, it deprives the complete ‘establishment’ legitimacy. Though Grayscale tried to list its GBTC in the NYSE in September last year, it was not successful.
The situation could change for the better in the upcoming days as there is a big demand for both corporate and retail for derivatives in cryptocurrency. There is also a strong lobby in favor of virtual asset ETF. Therefore, the SEC will be compelled to take a decision on digital assets ETF sooner than later.