Don’t Miss the Fine Print on That Bitcoin ETF

The hyped decision by the SEC about a Bitcoin ETF could either make bitcoin available on mainstream trading and investment platforms for Middle America…or not.  

This would mean mainstream investment platforms offer bitcoin as a US-regulated stock. “This will make the price go to mars,” says a Bitcoiner on Reddit. Indeed, a potential Bitcoin ETF has been credited with the bitcoin price rise in recent months. But not everyone is convinced the ETF will be approved.

Related: Needham´s Insights Into Factors Affecting SEC Bitcoin ETF Decision

Billions of Dollars in Hedge Funds, Which Stick to Buying Products on Major Exchanges, Would be Eligible for Bitcoin

The SEC has until March 11 to approve the ETF. The Coin exchange-traded fund filed its first S-1 for the trust in 2013, when bitcoin increased to its then all-time high.

According to Google Trends, excitement for the ETF is at fever pitch.

The Bitcoin ETF Coin is modeled after the fund on the SPDR Gold Trust ETF, where the fund buys and holds physical gold to back shares. Coin shares represent 1/100 of a bitcoin and the Bitcoin Trust plans to offer 10,000,000 shares at $10 each. Many expect the ETF could lead to a bitcoin price rally.

“Combining ETFs and bitcoin is likely to be consequential. After all, ETFs have been revolutionizing investments for 25 years, and bitcoin, since its 2009 introduction, has shown potential to completely change financial transactions,” writes Mike Venuto for ETF.com. “In an age where asset allocation is its own asset class, a bitcoin ETF could have a place in many portfolios.” Not everyone is happy about the investment product. 

“It will help centralize a big, big part of ‘Bitcoin’ capital by making some ppl take care of your private keys,” comments a redditor on the popular social media website, “making it vulnerable to all kinds of attacks that would not exist if it was used the way it was intended: without the need for third parties.”

Another adds: “ETF is really only hot air that will result in nothing but higher fees (in USD$). And that is the best case that can come out of it.”

Coin Recently Filed New Documents with the SEC

The action led some to speculate the likelihood of approval had increased. Much discussed, a recent amendment included a so-called “hard fork” clause.

“In the event, a developer or group of developers proposes a modification to the Bitcoin Network that is not accepted by a majority of miners and users, but that is nonetheless accepted by a substantial plurality of miners and users, two or more competing and incompatible Blockchain implementations could result,” reads the filing. “This is known as a ‘hard fork.’ In such a case, the ‘hard fork’ in the Blockchain could materially and adversely affect the perceived value of bitcoin as reflected on one or both incompatible Blockchains, and thus the value of the Trust’s bitcoin.”

Hard forks represent a reconfiguration of bitcoin protocol rules. If not everyone adopts the new implementation, Bitcoin could split into two groups, as happened when Ethereum hard-forked and Ethereum Classic came about. The Ethereum blockchain had split.

If this happens, Coin would side with the chain which enjoys “the greatest cumulative computation difficulty for the forty-eight (48) hour period following a given hard fork.”

In another scenario: “If the Custodian, in consultation with the Sponsor, is unable to make a conclusive determination about which Bitcoin Network has the greatest cumulative computational difficulty after forty-eight (48) hours, or determines in good faith that this is not a reasonable criterion upon which to make a determination, the Custodian will support the Bitcoin Network which it deems in good faith is most likely to be supported by a greater number of users and miners.”

In short, Coin defaults to the chain with the most hashing power, but reserves the right to decide otherwise.

Recent updates to the Bitcoin ETF SEC filing also include mentions of recent actions in China relating to the Bitcoin space.

“In January 2017, the People’s Bank of China announced that it had found several violations, including margin financing and a failure to impose anti-money laundering controls, after on-site inspections of two China-based Bitcoin Exchanges,” states the filing. “In response to the Chinese regulator’s oversight, the three largest China-based Bitcoin Exchanges, OKCoin, Huobi, and BTC China, started charging trading commission fees to suppress speculative trading and prevent price swings which resulted in a significant drop in volume on these exchanges.”

If a Bitcoin ETF Gets Approved It Could be Marred by Security Breaches Like the Mt. Gox Debacle

Associations with darknet marketplaces might not help its case, either – at least, it could undermine the ETF’s ability to attract investors from Middle America. To allay regulator concerns, SolidX, for their part, has proposed a project to insure against theft for bitcoin, which would include bitcoin-backed products.

In 2017, the bitcoin price has surged to all-time highs.

What do you think the future will be for Bitcoin in a world with a Bitcoin ETF? Let us know in the comments below.

Images courtesy of Shutterstock, Google Trends

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