The Case for The Bitcoin ETF

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Setting The Stage

Imagine a courtroom and Bitcoin making its way to the podium. Seated on the left side of the room are the bullish advocates; opposite to them are the bearish advocates. As Bitcoin passes the barrier and takes a seat, the SEC stares at it. Bitcoin sits their patiently twiddling its fingers and notices something interesting at the corner of the room; in the jury box are more government officials, banks, hedge funds, news reporters, white hats, and anonymous parties. The hearing begins, and the first and only question that the SEC wants an answer to is “why should we allow an ETF variation of you?”

 

What is an ETF?

Let us first start off with what an ETF is. An Exchange Traded Fund(ETF) is like a common stock, simple right? Now, this common stock is comprised of multiple securities, lost you I know. In this day and age when most of us hear common stock, we know to some extent we are taking part ownership of a company/entity. An ETF is similar/different, as an ETF allows us to invest in multiple securities such as other stocks, oil futures, bonds, foreign currency, and more, through just one common stock. Still lost? Putting it in the simplest way possible, ETF’s are like gift baskets in which you own a portion of everything in that gift basket. If there is a candy bar you are entitled to only a portion of that candy bar unless you buy the entire basket, in which you can then go ahead and eat the entire candy bar to your heart’s desire.

 

Benefits of an ETF

People can purchase a fraction of a bitcoin. Now you are asking yourself, why do people want an ETF if they could just straight up buy bitcoin without it. If you want to take it from a psychological standpoint, it is that sense of security. You see, even though we are advocates of decentralization, the majority of the world if you have not noticed has some major trust issues. Having some sense of centralization and security brings ease to the human mind, and thus results in less panic and more optimism. Have you noticed when a person speaks about their bad experience, others take that as a lesson and deviate from making the same mistake. The price of bitcoin retraced 70% from its all-time high back in December of 2017, and several people are at a loss. Many have taken the retracement as a sign to stay away from bitcoin. This is when an ETF comes into play. An ETF has the following benefits…

  • Security: As they are insured by an institution.
  • Familiarity: Can take part in the age of Bitcoin through a traditional investment process.
  • No taxes on yearly capital gains; only if you sell your “shares” do you get taxed.
  • Passively managed.
  • Diversification friendly (as we continue to expand in the space).
  • Low cost maintenance.

 

Closing Remarks

I applaud the Chicago Board Options Exchange(Cboe) for attempting to get an ETF approved, despite the rejection of past ETF’s. Even though some of us know what exactly happened when Bitcoin futures became a thing, you are that much closer to forgiveness if you get this ETF approved. As for the people of the Cryptocurrency and Blockchain community, continue to voice your opinion, stand as one, and make this a reality.

 

Featured Article Image by: Flickr

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About the Author

Andrew Chung
Instagram: @crypto_evo Telegram: @crypto_evo