Bitcoin price jumped $428 in less than 30 minutes on Tuesday pushing the price above $6,800. At present Bitcoins trading at $6690.
The reason for the price rise can be attributed to investor sentiments as U.S. Securities and Exchange Commission (SEC) is set to announce the verdict on Proshares Bitcoin ETF and Proshare Short Bitcoin ETF on 23rd August 2018.
Till date, bitcoin ETFs were either rejected or delayed because none of the Bitcoin ETF proposals could address the Securities and Exchange Commission's concerns. The questions they asked can be identified into 5 categories
1. Valuation of assets:
All the security market ETFs value their assets at the end of the trading session in the form of net asset value also known as NAV. How can Bitcoin ETF's achieve their asset valuation given the volatility and absence of regulations in cryptocurrencies?
2. Risk & Manipulation:
Unlike the securities market, the cryptocurrency market has a very low investor protection. It is susceptible to manipulation and fraud. Can the ETF be made available to a wide range of investors and would the investors have enough information to understand the risks?
3. Liquidity :
ETFs must have sufficient liquidity for daily transactions. What measures would ETFs take to maintain sufficient liquidity?
4. Protection of assets:
How safe are these assets from cybersecurity threats? How would a fund ensure the safekeeping & maintenance of private keys?
5. Arbitrage:
Exchange traded funds make profits by capturing slight differences in the price of securities on two different exchanges. For example
An ETF buys stock XYZ at $10 on the New York stock exchange and then sells it for $10.25 at Bombay Stock Exchange. Making a profit of $0.25.
The ETFs must have a market price that does not deviate significantly from its Net Asset Value (NAV). Given the high volatility and fluctuating trading volume in the cryptocurrency market, how it will be possible for bitcoin ETFs to trade in a volatile market? How will it affect Arbitrage?
Ramifications of the verdict post 23rd August 2018
If the decision is made in favor of Proshares Bitcoin ETF on 23rd August, then it could mean that a definitive solution has been reached to address the concerns of SEC. It could be a defining moment for other Bitcoin ETFs as September has a series of Bitcoin ETF deadlines lined up for approval. If Bitcoin ETF becomes a reality, then we can expect a big rally in Bitcoin price. My prediction is $15,000 by December 2018
If the decision is made against the ETF, then we can see a slight correction in the bitcoin price. Last time when the application of Cameron and Tyler Winklevoss to list the first ever cryptocurrency ETF on a regulated exchange was rejected by SEC, bitcoin price fell 3 %. I predict the price to go down to $6250 levels and test $5900 levels
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