Bitcoin ETF: when nature opposes reason

In our Crypto Today piece, we highlight the statements of Paul Atkins, former Commissioner of the U.S. Securities and Exchange Commission on Bitcoin Exchange Traded Funds (ETFs).

Mr Atkins stated:

The idea with ETFs is to basically start to have more of it [crypto] be a listed security that institutions and retail people could buy, so it’s not just people putting their money into whatever they think they’re putting their money into, but there’s an intermediary type of step between the raw Bitcoin.

The history of proposals to license a Bitcoin ETF is packed with failures, even though U.S. regulators have always left doors open to the future in past denials.

ETFs are products that have started gaining traction at the beginning of the century. Banks and Fund managers presented them as a hybrid product between investment funds and cash stocks traded on all markets around the world.

You don’t have any centralized trading platform for crypto assets out of design, and that’s great. But at the same time, it’s hard to find pools of liquidity, which helps them to create the volatility of the price, and that then, in turn, makes people very skeptical.

The ETF fund managers, who are responsible for managing the actual content of the exchange assets reliably car the value of the underlying.

The ETF investor, whether private or institutional, buys or sells its ETF shares instantly and at the actual price at that time. 

It is precisely in the price formation structure where regulators find more hurdles to provide the license.

The execution prices and volatility.

The problem arises from the extreme volatility of Bitcoin, as it is challenging to offer a reliable and optimal price for all parties involved. It is precisely at times of increasing volatility when there are peaks of trade orders (the psychological bias forced to the extreme). 

If we combine difficulty in obtaining:

- A price acceptable to both buyer and seller;

- Intraday ranges that can be very wide and,

- A high volume of orders at situations of high volatility, 

We can understand how difficult it could be to find the formula that is reasonably fair for all market participants. 

For now, institutions, which get juicy commissions for acting as intermediaries between the market and the investor, are still having trouble making room at the table for Bitcoin profits.