Spot Bitcoin ETF Approval May Open Door to Other Crypto Products – Martin Leinweber of MarketVector Indexes

[ad_1]

Get all the essential market news and expert opinion in one place with our daily newsletter. Get a full recap of the day’s top stories straight to your inbox. Register here!

(Kitco News) – Recent changes to bitcoin (BTC) exchange-traded fund (ETF) applications filed by some of the world’s largest asset managers have fueled optimism in the crypto community that the next big bull run is imminent as institutions are poised to enter the market in force.

But with the Securities and Exchange Commission’s (SEC) history of rejecting such requests due to fraud and market manipulation concerns, there is no guarantee that a spot BTC ETF will be approved. anytime soon.

To better understand the topic, Kitco Crypto spoke with Martin Leinweber, digital asset product strategist at MarketVector Indexes, the indexing arm of VanEck and an early indexing pioneer in the industry.

According to Leinweber, the main hurdle to a spot BTC ETF in the US remains regulatory uncertainty, as the SEC “has expressed concerns about market manipulation, liquidity and custody of the underlying assets.” These concerns persist despite recent inquiries from some of the most reputable names in the depository industry.

“While a reputable institutional-grade custodian can solve the custody problem, there is still no regulated exchange comparable to the NYSE,” he said. “The definition of a ‘significantly sized market’ is also unclear. Does it only include the USD pair, or does it also extend to stablecoin pairs? This has a significant impact on the choice of exchanges.

Adding Coinbase as a partner in the Apps Surveillance Sharing Agreement (SSA) “increases the chances of approval,” Leinweber said, as the agreement “enhances transparency and oversight, potentially mitigating some of the SEC’s concerns about market manipulation”.

“This feature was missing from older repositories and first appeared with BlackRock’s initial repository,” he said.

To help create a better chance of approval and to ensure their products have fair and transparent valuation, Leinweber said ETF issuers should use “reliable and regulated pricing sources, implement sound assessment and provide investors with clear and complete information”.

He added that regular audits and compliance checks are also essential. “For example, the NAV [net asset value] the valuation can be based on a regulated index that uses controlled exchanges and a reliable index pricing algorithm,” he said. “That’s why we developed a Bitcoin Benchmark Rate at MarketVector.”

Benchmark rates are another key element to getting approval for a spot BTC ETF. “The benchmark rate should be reliable, transparent and free from manipulation,” Leinweber said. “For example, MarketVector uses a volume-weighted median price based on top-rated crypto exchanges. This methodology is extremely resistant to manipulation, as it would require falsifying all trades over multiple timeframes, which is highly unlikely.

On the subject of how the approval of a spot BTC ETF could lead to the approval of additional institution-backed crypto products, Leinweber said that such approval “could open the door to ETFs based on d ‘other cryptocurrencies like Ether’.

He noted, however, that each application will be assessed on its own merits based on the prevailing regulatory environment.

“Bitcoin is the only coin considered a commodity by the SEC in the United States,” he said. “There are indications that ETH could also be classified as a commodity. The SEC has intentionally remained silent on ETH, the CFTC has futures on it, and the new exchange EDX also lists ETH, there therefore has a high probability that an ETH ETF will be approved.

As for other coins that are more likely to be labeled as securities, Leinweber said the creation of ETFs for these tokens “depends on how the SEC moves.”

“But remember, crypto is a global phenomenon,” he noted. “In Europe, there are already many multi-token baskets. It will also come to the United States, but the timing is still uncertain and unlikely in the near future.

Despite the challenges that remain, Leinweber said the outlook for institutional adoption of bitcoin, crypto and blockchain technology is positive.

“The BlackRock app indicates potential demand,” he said. “They wouldn’t proceed if they were only hoping to get $100 million in AUM. When Larry Fink speaks positively about crypto, it signals to other asset managers that perceived business risk is lower. This is evident in deposits that followed that of BlackRock.

He added that recent developments in Hong Kong show that the Asian market is “opening up” to crypto, while the passing of the Crypto Asset Markets Bill (MiCA) in Europe will create a “big region with regulatory clarity”.

“All of these are positive signs for institutional adoption,” he said.

Since BlackRock’s filing, Leinweber said there has been a significant increase in institutional interest in the asset class.

“This is demonstrated by the growing number of institutional-grade products and services, as well as the growing volume of institutional capital entering the space,” he said. “In particular, crypto stocks like Microstrategy, Marathon Digital or Coinbase have seen a strong rally because institutions can easily buy these stocks and they have a high beta against crypto. Thus, they serve as a crypto proxy for institutions that cannot yet buy crypto.

While he refrained from giving a price prediction for Bitcoin in the event that a spot ETF is approved, Leinweber said, “The approval or rejection of ETF applications will significantly influence the price of the BTC.”

“Approval could increase investor confidence and demand, potentially driving prices higher,” he said. “The first Bitcoin Futures ETF generated $1 billion in assets under management in two days. I expect a similar, if not higher, figure for the first Bitcoin ETF. It could follow a similar trajectory as the first ETF on gold, GLD, which now has more than USD 100 billion in assets under management.

For newcomers who are just starting to dip their toes into the world of crypto, Leinweber emphasized that “education is paramount. Start by understanding the technology behind digital assets, the different types of digital assets, and the associated risks. A small initial allocation to digital assets within a diversified portfolio could be an attractive strategy.

Before looking to invest in Bitcoin or other cryptocurrencies, he said investors should consider each asset’s historical price performance, volatility, correlation with other assets, trends regulations and general market sentiment towards cryptocurrencies.

“This new asset class offers unique risk-return potential and, over a longer period, is an excellent diversifier for a traditional 60/40 portfolio,” he added.

While Leinweber is optimistic about the future of cryptocurrencies as an asset class, he stressed that it is “crucial for readers to understand that while digital assets offer significant potential, they also carry considerable risks. It is essential to conduct your own research, understand what you are investing in and consider seeking advice from a financial advisor.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

[ad_2]