Bitcoin ETFs: What Lies Ahead in 2018?

It seems that cryptocurrency bitcoin doesn’t know where to stop. Its record run in the last one year corroborates this statement. It hit several all-time highs this year, despite caution by several central banks. As far as regulatory success is concerned, the first futures contract on Chicago Board Options Exchange (CBOE) was launched on Dec 10, and resulted in re-filings of futures-based bitcoin ETFs.

Overall, a rising tide for bitcoin took the value of the cryptocurrency to more than $19,000 on Dec 16. Investors should note that bitcoins are ‘mined’ by using a greater amount of computer processing power. However, since there is a fixed number of bitcoins, when the limit is reached, it becomes hard to ‘mine’ for the coins. The best part of this system is that it is beyond the reach of central banks (read: Explaining Bitcoin and Crypto Currency).

What Lies Ahead in 2018?

First of all, along with several analysts we too believe that Bitcoin and other cryptocurrencies are so new that the market is yet to estimate their intrinsic value. And unless the true value is known, it is not possible to say if an asset is overvalued or undervalued at the current level. However, we can definitely highlight the possible deterrents and boosters for bitcoins, going into 2018.

Boosters

With Cboe Global Markets launching three bitcoin futures contracts on the Cboe Futures Exchange, hopes are high in the space. The introduction of bitcoin futures will result in more liquidity and legitimacy in cryptocurrency trading. Since investors will now have a regulated way to buy and trade into the digital currency market, investors will throng this space.

Already, REX has refiled for two ETFs, namely REX Bitcoin Strategy ETF and REX Short Bitcoin Strategy ETF with the Securities and Exchange Commission (SEC) while VanEck has re-applied for the VanEck Vectors Bitcoin Strategy ETF. Both issuers took back their initial filings a few months ago at the request of the SEC (read: Bitcoin ETFs Are Back After Futures Launch).

In the meantime, First Trust is planning for a bitcoin futures ETF and filed it on Dec 11, to cash in on the euphoria. The Winklevoss Bitcoin ETF (COIN) which targets physical bitcoin, not futures, is being reviewed by the SEC on appeal. There are five equity blockchain ETFs filed and awaiting approval (read: Bitcoin Soars, Will Futures Pave the Way For ETFs?).

Understandably, the first bitcoin ETF is expected to be around the corner. Eric Balchunas of Bloomberg noted that the first bitcoin ETF would become a billion-dollar product soon after the launch. Mike Poutre, CEO of The Crypto Company, believes that the entire industry will be worth $5 trillion by the end of 2018. The founder of Standpoint Research expects another 500% ascent from the current level.

Deterrents

The key warning is taxation. An article published on thesteet.com indicated that Internal Revenue Service is cracking down on millions/ billions made on Bitcoin. The probes into cryptocurrency tax evasion may dampen the enthusiasm over bitcoin investing.

Thestreet.com article went on to explain that the diversification in the cryptocurrency space may mar bitcoin celebrations. This is because there are Ethereum, Litecoin, Dash and IOTA, apart from bitcoin. In fact, an Ether ETF, which will store ether, is waiting for SEC approval. So, to evade extreme overvaluation concerns, some investors may prefer another cryptocurrency over bitcoin.

More regulatory stringency is also expected ahead. In any case, the SEC has so far appeared pretty strict in giving a nod to such products. And last but not the least, many analysts are warning about a bitcoin bubble.

Most recently, Federal Reserve Chair Janet Yellen termed bitcoin as speculative, not a stable store of value and not a legal tender. UBS Wealth Management said, “cryptocurrencies only have value if accepted as currencies. However, they cannot be used for the most important transaction in an economy, and cryptocurrency supply can only rise and never fall (making them a poor store of value).” The SEC Chair also asked cryptocurrency investors to be cautious.

Bottom Line

As of now, the bitcoin mania is here to stay. Dmitry Zhulin, co-founder of INS Ecosystem believes that "bitcoin is expected to further [rise] to approximately $30,000-$40,000 in 2018 based on its convenience and further adoption as a means of payment and capital preservation.” But concerns will linger.

Whatever the case, the sheer success of the cryptocurrencies should benefit semiconductor ETFs like iShares PHLX Semiconductor ETF SOXX and VanEck Vectors Semiconductor ETF SMH. This is because mining of cryptocurrencies needs the usage of semiconductors (read: Should You Buy These Semiconductor ETFs & Stocks Now).

ARK Innovation ETF ARKK will also benefit as the fund invests about 8.98% of assets in bitcoin. On the other hand, since some view the cryptocurrency as “digital gold,” bitcoin trading may snatch some buyers from SPDR Gold Trust GLD. Bitcoin’s un-correlated nature to the other asset classes and strong momentum may hurt GLD.

Plus, some buyers may choose to invest in bitcoin ETFs, if approved, instead of alternative ETFs like IQ Hedge Multi-Strategy Tracker ETF QAI and WisdomTree Managed Futures Strategy Fund (WDTI) in a volatile market.

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