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October 31, 2017, 02:14:58 PM |
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Courtesy of Matt Levine (Bloomberg), thought he was on point here with what the purpose of a BTC ETF would be...
Bitcoin ETF.
What is the point of a bitcoin exchange-traded fund?
An ETF would give retail investors as well as institutions an easy way to get exposure to bitcoin, compared with buying or selling it on digital exchanges and holding it on a wallet secured to the blockchain, the software ledger that powers bitcoin and its cousins.
That is from this story about how people are confident that there will eventually be a bitcoin ETF, and they're excited for it. ("People are looking for something fresh and new in the ETF space," says a product developer.) At some level I get the point that there are regulatory uses for a bitcoin ETF. If you are an investor with a mandate limited to holding securities -- like some mutual funds or retirement accounts -- then you can't buy bitcoins, but you can buy shares of a bitcoin ETF. Now whether you should be able to do that is an open question -- presumably you are restricted to buying securities for a reason -- but I assume that some mandate-limited investors want to buy bitcoins, and regulatory arbitrage is one of the great main streams of financial innovation, and who am I to question it.
But I suspect that the main explanation is the one I quoted above: An ETF is "an easy way to get exposure to bitcoin, compared with" the insurmountable garbage that one goes through to acquire bitcoins directly and hold them securely. (Remember all the bitcoin enthusiasts who hold their private keys on paper in bank vaults.) The main reason many people don't acquire bitcoins directly is not that they are mandate-limited to holding securities -- most people don't have a problem holding dollars, which are not securities -- but that it is not especially easy to acquire and hold bitcoins. As a currency, bitcoin is frustratingly difficult -- so much so that it may be easier to go to a broker and buy shares of an ETF to get exposure to bitcoin, rather than to hold it directly.
Of course if you are buying shares in a bitcoin ETF it is to bet that the price of bitcoin will go up. If you are betting that the price of bitcoin will go up, it might be because you think that bitcoin will see further adoption as a currency. But the fact that you are buying shares of the ETF, rather than buying bitcoin directly, undermines that thesis. The need for a bitcoin ETF is an argument against buying it.
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