An ongoing source of frustration for many members of the U.S. cryptocurrency and exchange traded fund (ETF) communities is the lack of a bitcoin ETF. The Securities and Exchange Commission (SEC) has continuously blocked efforts from the ETF community to bring products based on the largest digital currency to market, but some market observers believe a bitcoin ETF can still become a reality.
“I would have thought we were not going to see anything here in 2018 on bitcoin ETPs, but if [the SEC] is out there asking for some comments around the ProShares filing, they are not wasting time, I know that,” said Amplify ETFs CEO Christian Magoon in an interview with WealthManagement.com.
Earlier this year, Amplify introduced the Amplify Transformational Data Sharing ETF (BLOK), an actively managed ETF dedicated to companies with exposure to blockchain technology. BLOK, which is almost four months old, has over $177 million in assets under management, a decent figure for an ETF of that age.
Many ETF issuers expected the launch of bitcoin futures, which debuted on two U.S. exchanges in December, would help facilitate the debut of ETFs related to the cryptocurrency. Following the launch of bitcoin futures on Cboe and CME, a slew of ETF sponsors reapplied to launch bitcoin funds, but were still rebuffed by the SEC.
While the Securities and Exchange Commission (SEC) opened a comment period on bitcoin ETFs in early January, soon thereafter the commission told ETF sponsors to withdraw their applications for funds related to the largest cryptocurrency.
“But, maybe they are getting a little bit more serious. Maybe it’s because the market has cooled off in terms of cryptos. That would be a big coup for ProShares, and, of course, they’re not a stranger to controversy given all of their inverse and leverage products,” said Magoon. “My guess is their user base is pretty hedge fund-y, trader-y, and would probably love bitcoin and exchange traded products (ETPs).”
Recently, the SEC said it is evaluating whether or not to let ProShares, a major issuer of ETFs, list the ProShares Bitcoin ETF and the ProShares Short ETF. ProShares orignally filed plans for those products in September.
Assuming a bitcoin ETF or ETFs come to market in the U.S., that could significantly increase investor adoption of the digital currency because while many investors have signaled interest in digital assets, they are reluctant to buy and hold alt-coins over exchanges and in digital wallets. The ETF wrapper would ameliorate those problems.
Not Many Good Grades For Cryptos
One ratings agency is applying grades to some cryptocurrencies and, for the most part, this is not a report card to be posted on your parents’ refrigerator.
Weiss Ratings, an independent ratings agency that assigns letter grades to about 55,000 institutions and investments, including nearly all of the nation’s insurance companies, banks, credit unions, stocks, ETFs and mutual funds, recently published grades on 93 digital currencies. That is a small slice of the overall alt-coin universe, which is home to more than 1,500 coins.
In its most recent report, a follow up to its initial grades released in January, Weiss Ratings upgraded bitcoin to a grade of B- from C+.
“Cryptocurrencies do not have to achieve an A grade to merit interest by investors. A ‘B’ or even ‘B-‘ also qualify as the investment rating equivalent to ‘buy.’ At the same time, investors should not be overly alarmed by a ‘C’ rating. It is a passing grade; and for investors, implies the equivalent of ‘hold,’” according to Weiss.
Inside The Grades
Just 14 of the cryptos graded by Weiss landed grades of B or B- while 54 received C ratings. Among those in the B category are EOS, ADA and DCR. Those with B- ratings include bitcoin, ethereum, IOTA, Ripple and STEEM, among others.
Among the well-known cryptos in the Weiss C category are bitcoin cash, dogecoin, litecoin and siacoin, among others.
“The new world of cryptocurrencies has delivered astonishing profits to investors and holds great promise for the future,” according to Weiss. “Millions of new investors have rushed in. Hundreds of self-declared experts have appeared to advise them. But the market suffers from lax standards, murky operators, marketing hype, and periodic market crashes. It desperately needs the clarity that only robust, impartial ratings can provide.”
The ratings agency offered a fair view of bitcoin.
“Bitcoin (rated C+) gets excellent scores for security and widespread adoption,” said Weiss. “But it is encountering major network bottlenecks, causing delays and high transactions costs. Despite intense ongoing efforts that are achieving some initial success, Bitcoin has no immediate mechanism for promptly upgrading its software code.”
Bitcoin Bull Stands by His Call
It takes some temerity to stand by a bullish call when a security is looking increasingly bearish. Give Fundstrat’s Tom Lee some credit for sticking by his recently bullish view on bitcoin.
At this writing Wednesday, bitcoin was down more than 8% and barely clinging to the $7,550 level, giving the largest digital currency a market capitalization of $128.83 billion. After surging 35% in April, prompting some traders to opine that $10,000 was coming, bitcoin prices have been slammed this month, stoking speculation of a new bear market.
“I think the chart is pretty scary for folks because bitcoin was $20,000 in December and it’s less than half that now,” said Lee in an interview with CNBC. “But the reason is investors should care about this is, number one, the notion of blockchain as a way to solve trust in the digital world has gained a lot of traction. What investors aren’t connecting is that we can’t necessarily say ‘I believe in the blockchain.’ Bitcoin and cryptocurrencies are essential to how blockchains operate.”
Lee recently said bitcoin could rise to $25,000 as soon as later this year.
Lots Of Challenges
To be fair, Lee is not the only bitcoin bull. In fact, some recent forecasts from other market observers call for the digital currency to rise well into the six figures.
Regardless of the upside call, bullish views on digital currencies currently face myriad challenges. On Wednesday, each of the 30 largest alt-coins by market value finished lower during the U.S. trading session and of those 30, 24 finished with double-digit losses.
“The case I’d make for bitcoin is, number one, the cost of producing and replicating bitcoin today as a store of value is around $8,000 fully loaded so bitcoin is trading around cost,” said Lee. “Gold as another store of value is trading more than twice its extraction cost.”
Lee also highlights the potential for institutional investors to play a significant role in the digital currency market. The strategist said institutional investors are increasingly interested in cryptocurrency as an asset class, but they have not moved into crypto in a big way due to regulatory uncertainty.
“That sort of ultimate allocation into crypto as an asset class is going to be a powerful reason why bitcoin rallies,” said Lee.
Lee stands by the $25,000 forecast for bitcoin.
A Bullish Call on Bitcoin Cash
Bitcoin cash often goes overlooked relative to bitcoin, but at least one cryptocurrency market expert believes the former is the place to be among digital currencies.
Brian Kelly, who is founder and CEO of BKCM, an investment firm focused on digital currencies, “said Monday bitcoin cash is the must-own digital currency of the moment,” reports CNBC. “On Saturday, bitcoin cash miners met to discuss funding for a bitcoin cash development fund, he told CNBC.”
As of this writing Tuesday, Bitcoin cash has a market capitalization of $19.86 billion, making it the fourth-largest digital currency behind bitcoin, ethereum and ripple.
“Bitcoin Cash brings sound money to the world, fulfilling the original promise of Bitcoin as ‘Peer-to-Peer Electronic Cash.’ Merchants and users are empowered with low fees and reliable confirmations. The future shines brightly with unrestricted growth, global adoption, permissionless innovation, and decentralized development,” according to BitcoinCash.org.
More About The Trade
“In the fund, miners are “going to take some of the rewards they get from mining and put it in a fund to build stuff on top of bitcoin cash,” Kelly said in an interview with CNBC.
Kelly is a note cryptocurrency market expert and he recently introduced an actively managed exchange traded fund (ETF) dedicated to companies with exposure to blockchain technologies. The REX BKCM ETF (NYSEArca: BKC), which is a partnership between Rex Shares and BKCM Funds, debuted last week.
“Bitcoin probably won’t be the only winner. There could be plenty of winners as this new world unfolds—among cryptocurrencies, hardware makers, and businesses that learn to capitalize on the blockchain,” said Kelly in a recent blog post.
Kelly manages a long/short hedge fund focusing on Bitcoin, Ethereum, Stellar, Monero, Litecoin, and other digital currencies.
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