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Fund Providers Insist There’s Enough Market Liquidity for a Bitcoin ETF

January 10, 2019 |

For years, bitcoin exchange traded funds (ETFs) have been struggling to get off the ground and receive approval from the U.S. Securities and Exchange Commission (SEC). Passive fund providers are now arguing there is sufficient market liquidity for a bitcoin ETF to be launched in 2019. 

Also read: SEC Wants Second Look at Nine Bitcoin ETFs

ETFs to Top $ 9 Trillion by 2022

Fund Providers Insist There's Enough Market Liquidity for a Bitcoin ETFETFs are becoming a large part of the investment landscape. Research firm ETFGI predicts that in 2020, ETFs and ETPs listed in Europe will reach $ 1.1 trillion. Morgan Stanley forecasts global ETF assets to top $ 9 trillion by 2022. As interest in these products grows, regulators have been addressing structural vulnerabilities. Research conducted by broker and asset manager Charles Schwab shows the millennial generation is increasingly choosing to invest in ETFs accessed by apps. It could be a game-changer when – or if – the SEC approves a bitcoin ETF. 

There have been a number of applications submitted over the years. The most recent ones include Proshares, which had two proposals for a bitcoin ETF, both based on bitcoin futures contracts. There was also the Vaneck-Solidx proposal which is based on a physical-backed bitcoin ETF. Before an ETF is approved to trade on one of the U.S.’s major exchanges, there is a number of factors which need to be considered.

Bitcoin Market Cap Stands at $ 72 Billion

Last year, Blockforce Capital launched blockchain ETFs in the form of BLCN and the world’s first Chinese blockchain ETF, BCNA.  Eric Ervin, CEO of Blockforce Capital, told the current market environment has the ability to support an ETF for two primary reasons.

Fund Providers Insist There's Enough Market Liquidity for a Bitcoin ETF“First, [BTC] has a market cap of $ 72 billion,” he explained. “While this is small in comparison to many blue-chip stocks, there are a number of ETFs currently on the market that are focused on esoteric assets. For example, iShares’ IWC ETF focuses on micro-cap stocks, and has almost $ 900 million in assets. Collectively, the underlying stocks have a market cap of about $ 450 billion. That number dwarfs bitcoin’s market cap, but when looking at the underlying assets’ liquidity, there are significant volume constraints.”

Ervin explained that 40 percent of the IWC fund comprises holdings that are greater than 50 percent of the average 30-day volume. This is because most are micro-caps, and are also only listed on U.S. exchanges. Ervin highlights that in comparison, BTC’s 24-hour trading volume is about $ 5.3 billion, and trades on multiple exchanges around the world, allowing global investors to add liquidity to the marketplace.

Exchange Arbitrage Is a Growing Business

As the market develops, participants are becoming more sophisticated and exchange arbitrage is a growing business.

Fund Providers Insist There's Enough Market Liquidity for a Bitcoin ETFErvin said: “Exchange arbitrage – buying bitcoin on exchange A and selling on exchange B to take advantage of small price inefficiencies – is a growing business as many traditional market players enter the space because returns from arbitrage are considered ‘risk free’ as the strategy has no directional exposure.”

When the Blockforce Capital team started arbitraging prices at the beginning of summer 2018, they were averaging around 75 bps profit per trade. “That number has dwindled and the number of opportunities have gone down considerably, due to increased competition. These market participants add liquidity to the marketplace because if an exchange’s price of [BTC] deviates from the global mean, market participants will arbitrage the price back in line with the global average,” explained Ervin.

He concludes that this factor, coupled with an expanding derivative, futures, and swap market, adds liquidity and makes it much more difficult for the price of a globally traded asset to be manipulated, adding:

We could make the case that an ETF holding a substantial amount of a micro-cap stock’s daily volume would have a higher impact on the price than a globally traded asset. 

Scandinavia Leads Market With Bitcoin ETNs

As the SEC continues to agonize over whether to approve a bitcoin ETF, it is worth taking a look at other crypto financial products such as Sweden’s bitcoin exchange-traded note (ETN). In May 2015, XBT Provider AB announced the authorization of Bitcoin Tracker One, the first bitcoin-based security available on a regulated exchange.

Fund Providers Insist There's Enough Market Liquidity for a Bitcoin ETFLaurent Kssis, the CEO of XBT Provider, a Coinshares company, said that to put things in perspective, a so-called ‘physical’ bitcoin ETF simply asks for money upfront to buy the underlying asset physically.

“In this way, a bitcoin ETF provides quick exposure to the underlying asset, but this also means the market needs to be liquid enough to support any new demand for the underlying asset – in this case, bitcoin. There is a key operational question that regulators and investors alike need answered before approval of a bitcoin ETF,” explained Kssis. 

The good news is there are prior proxies in the market to study. Kssis said in his experience of operating the BTC and ETH trackers on Nasdaq Stockholm – notes which are hedged by buying the underlying asset (BTC 1:1) – he has so far been able to keep up with demand while maintaining an accurate price over the last three and a half years without any liquidity issues and being the sole liquidity provider.

“Put differently, even during the height of 2017, the underlying bitcoin market remained liquid enough to absorb new demand as we bought bitcoin to physically hedge the bitcoin trackers,” added Kssis. 

Fund Providers Insist There's Enough Market Liquidity for a Bitcoin ETF
Nasdaq volume of all issuers on Dec. 7 2017.

According to XBT Provider, during 2017, when BTC traded at $ 20,000, the group was able to source ample liquidity. “My takeaway from 2017: even with substantial demand driving AUM well above $ 1 billion, the market demonstrated that delta-one security desks were able to source ample liquidity in the market to operate similar products to a proposed bitcoin 1:1 physical bitcoin ETF. A futures market will simply enhance that liquidity that is already available,” said Kssis. 

If Crypto Trading Picks up Expect More Launches

Fund Providers Insist There's Enough Market Liquidity for a Bitcoin ETFOther products available in the market include Greyscale Bitcoin Investment Trust (OTC:GBTC) which trades over the counter and the Amun Crypto Basket Index (SIX:HODL) which launched in November 2018 on Switzerland’s Zurich-based SIX Exchange. 

According to Lars Seier Christensen, chairman of Concordium and founder of Saxo Bank, if trading picks up we can expect more launchesHe said: “If the primary cryptocurrency exchange market continues to be in trouble, there will be little appetite for launching new trading vehicles. On the other hand, if trading picks back up, it is quite likely that we will see a slew of new initiatives being launched — perhaps even some that have already been planned and gone through due diligence but where the offering party have been waiting for a better time to launch.” 

Do you think the SEC will approve a bitcoin ETF in 2019? Let us know in the comments section below.

Images courtesy of Shutterstock and XBT Provider. 

Need to calculate your bitcoin holdings? Check our tools section.

The post Fund Providers Insist There’s Enough Market Liquidity for a Bitcoin ETF appeared first on Bitcoin News.

Bitcoin News

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Test Driving the Money Button — Simple Enough for a 9-Year Old

September 15, 2018 |

Test Driving the Money Button — Simple Enough for a 9-Year Old

On September 13 the Money Button launched, allowing people the ability to integrate a Bitcoin Cash-powered payment button into any website or application. This week we tested the Money Button’s user interface with a website to see how easy it is to add a digital currency payment button.     

Also read: Ledger Nano S Review: Can This $ 65 Device Top Trezor?

Taking the Money Button for a Test Spin

Last week showed a preview of the Money Button after the application’s creator, Ryan X Charles, published a video on the subject. Since then on September 13, the first version of the platform has launched and we decided to give the application a test spin to see how it worked. Furthermore, my 9-year old son Joshua, who is very familiar with bitcoin and who has reviewed platforms and devices with me before, helped me with the review. We’ve reviewed the Ledger Nano S together and we also used to upload his artwork to the website Blockpress. Joshua is currently in the process of creating his own website on Wix using the site’s web builder and we decided to test the Money Button on his build.

Test Driving the Money Button — Simple Enough for a 9-Year Old
A Money Button can be created without registering.

The first thing we did was register with Money Button to set up a wallet. You don’t have to register to set up a button, as you can add a third party BCH wallet or add the user number of another Money Button wallet. After registering, the platform creates a seed and asks you if you want to back up the mnemonic. Users can also skip the back up right away (not recommended) and write down the mnemonic at a later date. After that you can load a wallet with funds and you can use this money to tip other websites on the web that have a Money Button deployed. But we decided to create a Money Button to see how simple it was for Joshua to add it to his website, which is unpublished at the moment, but we used the button in the preview.

Test Driving the Money Button — Simple Enough for a 9-Year Old
Joshua customizes his Money Button called ‘Joshua’s Tip Jar’ before adding it to his website build.

So Joshua went to the ‘create your own Money Button for free’ page on the website. From there you can customize the payment button with a variety of options such as making a tip button or a paywall button. We decide to make a ‘tip’ button and tether it to the Money Button wallet we just created.

Test Driving the Money Button — Simple Enough for a 9-Year Old
The Money Button configuration page.

Users can then choose the Money Button’s label which allows for 20 characters inside the button describing the amount you can tip, a label or a customized label and amount. For our button, we named it ‘Joshua’s Tip Jar’ and created a tip button for $ 10 USD worth of BCH that will be sent to our Money Button wallet. Users can set the button to any amount of money and in a wide variety of digital and fiat currencies. You can also choose to tether the button to another wallet address.

Test Driving the Money Button — Simple Enough for a 9-Year Old
Joshua simply added the code to the HTML i-frame editor on his website builder. Of course, people who are fluent with HTML code can add it directly to their website’s back end.

After selecting everything you want, to the right, you can see a preview of the button and even slide it to test out how it works on the Money Button website. Under that preview, there is some code that can be added to any website, and the firm says a WordPress plugin is on the way. Joshua went to his Wix web builder and easily pasted the code into the i-frame box and then positioned the button where he wanted it placed. After that, Joshua previewed his website (what it would look like if it was live on the web) to see how his Money Button looked and worked. We were both pleased to see the ‘Joshua’s Tip Jar’ button and it operated just like it did on the platform when we created the code.

Test Driving the Money Button — Simple Enough for a 9-Year Old
Joshua is pleased with the finished product and placement looking at the website in the preview.

Overall the experience was pretty straightforward and for people who know the basics of using a bitcoin cash wallet will grasp the Money Button application with ease. Joshua liked the idea that people could tip him when he added his artwork to his website in the future. And we both thought the button could offer a lot of incentive for content creators on the web if the application catches on and gains popularity going forward.

What do you think about the Money Button platform? Let us know what you think about this subject in the comment section below.

Images via Shutterstock, Money Button, and Jamie Redman. 

Need to calculate your bitcoin holdings? Check our tools section.

The post Test Driving the Money Button — Simple Enough for a 9-Year Old appeared first on Bitcoin News.

Bitcoin News


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