World’s Second Bitcoin ETF Approved: Weakening its Decentralization Attributes?

Just a few days later, the world’s second approved bitcoin ETF was revealed.

On February 16, Canadian fund manager Evolve Funds Group Inc announced on its website that it has been approved to launch a bitcoin ETF, saying it has filed a prospectus to issue a bitcoin exchange traded fund (ETF) that will trade on the Toronto Stock Exchange under the symbols “EBIT” and “EBIT.U”. According to the prospectus, the ETF is established under the laws of Ontario.

Raj Lala, President and CEO of Evolve ETF, said, “The Bitcoin ETF is exciting news for investors. Investors will be able to trade bitcoin on a regulated stock exchange as easy as buying stocks through a bank or broker. EBIT will provide daily liquidity, transparency and security for buying bitcoin directly through a regulated ETF structure.”

And just on February 12, Reuters reported that Toronto-based asset manager Purpose Investments Inc. said in a statement that Canada’s main securities regulator, the Ontario Securities Commission (OSC), had approved its launch of a bitcoin ETF, making it the world’s first approved bitcoin ETF. The news was also confirmed by OSC.

Bitcoin ETFs: Helping Investors Gain “Liquidity” and “Asset Security”

The full name of ETF is Exchange Traded Fund, which is an open-ended fund that can be traded on the stock exchange. The fund management company can offer new shares to investors at any time, and also needs to buy back the shares held by investors at any time upon request.

The launch of a bitcoin ETF means that more mass investors will have the opportunity to invest in bitcoin. Prior to the Bitcoin ETF, the Chicago Mercantile Exchange (CME) launched Bitcoin futures in 2017, and the Toronto Stock Exchange already had Bitcoin closed-end funds available for trading.

Reuters reports that Arthur Salzer, CEO of Northland Wealth Management, noted that ETFs can offer investors some advantages, such as buying at net asset value rather than at a premium, and that “OSC is right to consider ETFs, which eliminate some of the disadvantages of the original closed-end funds. ”

For his part, Yanxi Gu, founder of Liyan Consulting and a researcher in the blockchain and crypto digital asset industry, told that mass traders can hold their underlying assets by holding ETF shares. And these ETF shares are held by a formal custodian. Mass investors thus have access to both the liquidity in the stock market and the security of assets provided by the custodian.

According to Yu Jianing, President of Huobi University, the difference between traditional ETFs and Bitcoin ETFs is that most traditional ETFs are index-based funds that do not have to bear the cost of discretionary active portfolio management, and traditional ETFs are usually even cheaper than index mutual funds for individual investors. In addition, traditional ETFs not only have the advantage of diversified underlying investments in mutual funds, but also have the flexibility of trading stocks. However, bitcoin ETFs are more anchored to the price of bitcoin, which can actually be traded quickly in the secondary market, only at a compliance level that is more friendly to institutional funds.

Impact on bitcoin price

“If a bitcoin-based ETF is issued and circulated, it will definitely lead to a large amount of user funds entering bitcoin, and therefore it will definitely raise the price of bitcoin significantly.” According to Gu Yanxi, this law can be seen from the impact of the launch of gold ETFs on the price of gold.

The above-mentioned bitcoin investor also said that the approval of the bitcoin ETF means that mainstream funds have a compliant investment tools, individual investors and institutional investors can allocate part of their funds to bitcoin, bringing new funds to bitcoin and therefore driving up the price of bitcoin, “after all, the total market capitalization of bitcoin is still very small”.

Between the approval of the two bitcoin ETFs, according to Coindesk, the price of bitcoin stood at the $50,000 mark on February 16, and the highest price touched $52,621 on February 18, and is still breaking new historical records, with its market capitalization already surpassing Tencent.

Will decentralization attributes weaken?

“A lot of real bitcoin are being locked up and turned into paper bitcoins similar to paper gold. This one is actually weakening the decentralized nature of Bitcoin as well.” He said.

The investor pointed out that because Bitcoin has two greatest attributes, one is investment and the other is the use of technology to ensure that personal property is not violated. With the launch of the Bitcoin ETF, only the investment function is available, and the “anti-regulation” function is missing. When institutions have more and more bitcoin in their hands, it can actually be seen as the regulators are weakening the “anti-regulation” function of bitcoin.

But Yu Jianing believes that, in fact, the decentralized nature of Bitcoin stems from the mechanism by which it works. No matter who holds these Bitcoins, it is ultimately the miners who wrap up these transactions and record this information on the chain in a decentralized manner.

He noted, “Countries have been more cautious in regulating Bitcoin due to its decentralization and anti-censorship nature, which has held back Bitcoin’s global growth.”

May Boost U.S. and Other Countries to Launch Bitcoin ETFs

He noted that several companies are now applying to set up bitcoin-based ETFs in the U.S. market, including VanEck, Morgan Stanley and NYDIG, and these applications all started at the end of December last year, so the frequency of bitcoin-based ETF applications in the U.S. market has accelerated significantly. According to Reuters, eight companies have applied for ETFs since 2013 but none have been approved. The SEC seems to be focusing on the possibility of market manipulation and on verifying the custodial audit process for funds holding their purported assets.

Yu Jianing also believes that the approval of the Bitcoin ETF in Canada means that there is a slight shift in the regulatory attitude, although this time it is not passed by the U.S. SEC, if the Canadian ETF can develop well, it may be able to alleviate the concerns of the U.S. SEC to a certain extent.

In fact, Yanxi Gu believes that similar products are now available in the U.S. market. Retail users can buy and sell bitcoin through apps like PayPal and Square, and trading platforms like Coinbase and Kraken. Institutions can also hold bitcoin by buying shares of Grayscale trust funds. So in the US market, retail and institutional users can already buy and sell bitcoin-related products.

“In addition, whenever such products appear in the market, that must be followed by a situation where multiple companies will apply for issuance centrally, a situation that is evident from the trust funds in the Grayscale category.” Yu Jianing said.

He also said that other proposed bitcoin ETFs may also be moving toward approval, according to documents uploaded to SEDAR, including Horizons ETF Management (Canada) Inc., Arxnovum Investments Inc. and Accelerate Financial Technologies Inc. have filed bitcoin ETF prospectuses that have released preliminary decision documents.

Article from Ye Yinghe

Translated by Yang(Mengyan Finance)

To translate some latest policy and issues on blockchain and fintech happened in China