Bitcoin rise or fall? Winkelvoss Bitcoin ETF what is it and what can we expect from SEC's decision

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"Bitcoin is at a critical juncture. Any time now, the Securities and Exchange Commission will issue a decision that could throw open the door to a flood of new capital, and change how many investors regard the digital currency.
The SEC's bitcoin decision, which is over three years in the making, is due by Friday. "
Jeff John Roberts, Mar 09, 2017

Recently there has been a lot of talk about the Bitcoin ETF that was set up by Tyler and Cameron Winklevoss.

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In this short post I want to give you a general overview about what’s all the fuss about, and let’s start with the basics.

WHAT IS AN ETF?
ETF stands for Exchange-Traded Fund. It’s basically an investment vehicle that tracks the performance of a specific asset. In plain words, it’s a piece of paper you invest in that tells you “I’ll be worth whatever X is worth” – X being a specific asset such as oil, gold, bonds, stocks or currency.
It’s a simple way of investing in an asset without owning the asset itself. Since a lot of people who trade don’t really care about the actual asset but only about its profit and loss, ETFs simplify the investment process. So if I want to invest in Gold for example because I think the price of gold is about to explode, I don’t have to buy physical gold, I can just buy a gold ETF.

WHAT IS THE BITCOIN ETF?
As you probably figured out by now, the Bitcoin ETF is a type of ETF that will mimic Bitcoin’s price – it is set to be traded on the Bats Exchange. This means that anyone who trades on the Bats will be able to invest in Bitcoin (including large institutional investors). It will also eliminate the need for storing and securing your Bitcoins since you don’t own the currency itself.

At the moment the SEC (Securities and Exchange Commission) is debating on whether to approve or decline the ETF. The ETF proposed by the Winklevoss brothers is not the only ETF waiting to be approved by the SEC. SolidX also proposed to set up an ETF and is waiting until March 30th for the SEC’s approval to be listed on the NYSE. Grayscale filed to list their ETF also. However, the Bitcoin ETF by the twins is probably the first in line as they originally filed their request in 2013.
The SEC is said to supply it’s response on March 10th 2017. However,if the SEC doesn’t issue a ruling one way or another, the proposed fund would be approved by default. Given that no ETF has been brought to market in this way, this is considered an exceedingly unlikely outcome.
(Source: 99Bitcoins.com BY OFIR BEIGEL)

WHY IS THIS ETF SUCH A BIG DEAL?
It's all about liquidity. While there are plenty of places to buy bitcoin, many investment funds can only hold assets that meet certain regulatory standards—such as approval from the SEC. If the agency approves the ETF application, money managers who want to include bitcoin in their portfolio are likely to jump in. Meanwhile, millions of ordinary people will have an easy new way to buy the digital currency. I can't really phrase it any better than this quote from BitMex, a bitcoin analysis site:
If the SEC approves the Bats rule change, all manner of American muppet retail investors can yolo into Bitcoin via a regulated ETF. The pool of eligible money that can easily obtain exposure to Bitcoin will dramatically rise. There are various predictions about the amount of money that could flow into Bitcoin. In short, it will be Yuge.

WHAT'S THE SEC DECISION?
The agency must decide if the BATS stock exchange can change its rules to offer a bitcoin ETF (exchange traded fund), which would let people buy bitcoin like a common stock. The ETF—called the Winklevoss Bitcoin Trust ETF—is the creation of the Winklevoss brothers, who once fought Mark Zuckerberg for control of Facebook, and now own a large stock of bitcoins.

WHERE AND WHEN WILL WE SEE THE DECISION?
The SEC is obliged to make the decision by March 11, which is this Saturday. That means the ruling is almost certain to come out today.
According to Blake Estes, an alternative asset expert at the law firm Alston & Bird, the decision will appear on this SEC web page, and everyone will find out at the same time.
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WHAT ARE THE ODDS THE SEC SAYS YES?
People are calling this a coin toss. Those who think the SEC will approve the ETF point to the skillful work carried out by the Winklevoss lawyers, and to the fact that bitcoin is far more mainstream than it was even two years ago. Today, many more people—including regulators—are familiar with digital currency and how it works. There is also a sense that a bitcoin ETF is sooner or later inevitable.
Pessimists, on the other hand, can point to two sets of concerns that could lead the SEC to give the thumbs down. The first of these relates to how the Winklevoss intend to run the operation. Some people are uneasy that the proposed ETF would use Winklevoss-controlled businesses to source and store the bitcoins that would back the shares. The other set of concerns lie with bitcoin itself. The digital currency has been subject to wild price fluctuations, driven in part by heists and insider antics. According to Estes, the SEC may worry the agency's approval of an ETF could lead to a bubble inflated by bitcoin novices—a bubble that could then pop.
"Some fear it could be a good opportunity for legacy players to find the next sucker to take it off their hands," said Estes.

THE ADVANTAGES OF A BITCOIN ETF
Once there is a SEC regulated ETF on the market this opens up the opportunity for many investors to jump in and invest in Bitcoin without actually holding the currency by making it more accessible. The SEC’s approval would be another major step towards regulation Bitcoin worldwide.
Also since this is an investment vehicle you will be able to short sell it if you think the market is going down. Furthermore, investing in an ETF will remove one of the major drawbacks currently holding people from investing in Bitcoin – the need to understand the currency and how to secure your coins.

THE DISADVANTAGES OF A BITCOIN ETF
The main disadvantage of the ETF lies with the fact that the investment trust of the Winklevoss twins which issues the ETF currently doesn’t have insurance for investors’ money in case their coins are lost or stolen. SolidX on the other hand does supply insurance (but will be approved/rejected on a later date).
Also there is a fee of around 2% attached to investing in the Bitcoin ETF. However, seeing how this is relatively low compared to the usual fees people face when buying Bitcoins I don’t think this will deter a lot of investors.

HOW WILL THIS EFFECT THE PRICE?

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Bitcoin has been on another tear of late, nudging a record of $1,300 per unit—more than an ounce of gold. Some of this likely reflects investor optimism the SEC will approve the ETF, meaning a future price rise is partly baked-in. Nonetheless, there are broad expectations the short term price of bitcoin will go crazy if the SEC says yes.
If the SEC says no, it will have a negative effect, though probably not a very dramatic one. The reason is there are two other ETF application before the agency. One is called the Bitcoin Investment Trust, and was developed by Barry Silbert, a well known figure in the digital currency world. The other, called SolidX, is distinct in that proposes to insure its bitcoin assets.
As noted above, there is a general feeling that approval for a bitcoin ETF of one type or another is inevitable, and so a rebuff by the SEC to the Winkelvoss proposal would only be a temporary setback.
However, if the SEC rejects the ETF this may cause panic in the market and have a lot of people selling their coins bringing the price of Bitcoin down.

Nobody can really say how this will affect Bitcoin in the long run, however the logical outcome would be that if the ETF is approved, more people will now be able to invest in Bitcoin and the price will gradually rise. Just for the sake of comparison, gold ETFs were introduced in the mid 2000s and after that the spot price for gold tripled within 5 years.

To conclude, it seems like this is going to be a very interesting week…

SHOULD I BUY BITCOIN?

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That's something only you can decide—preferably after a lot of research. Today, many people see bitcoin as another alternative asset class to add to a diversified portfolio. But bitcoin has an extremely volatile history, and has been prone to spectacular crashes, so if you're averse to risk, it's probably not for you.