First-Ever Crypto ETF, Now What?
The first cryptocurrency exchange-traded fund (ETF) was just approved. What does this milestone mean for the future of cryptocurrencies?
Before examining the effects of this new milestone, let’s first break down the facts of this approval. On Oct. 1, Silicon Valley-based investment firm Volt Equity issued a statement about newly-approved Securities and Exchange Commission (SEC) fund Volt Crypto Industry Revolution and Tech ETF, which the firm will manage. This fund is unique in that its companies engage in direct crypto-trading and mining. Although this new fund, trading on the Nasdaq under the ticker (BTCR), will not directly invest in bitcoins or in other cryptocurrencies, it is the first approved ETF that will invest in companies that have a majority of its funds in Bitcoin and other cryptocurrencies. Examples of the companies that the Volt ETF will contain are MicroStrategy (NASDAQ: MSTR), which has a majority of its net assets in bitcoin, and Marathon Digital Holdings (NASDAQ: MARA), which most of its net profits are from crypto mining. The SEC’s approval of Volt’s ETF was a major surprise as just a week prior many other crypto-based ETF approvals were rejected.
Now that this ETF has been approved, what does this mean for the everyday investor? Why wouldn’t an investor prefer to invest directly in the various cryptocurrency markets as opposed to this indirect crypto ETF?
The first benefit would be an available diversified investment opportunity in an already volatile industry. This diversification provides a secure and safe approach when investing in cryptocurrencies. A crypto ETF will motivate and encourage a whole new wave of crypto investors who have a more conservative approach.
Another benefit would be outsourcing the crypto research to market professionals. The valuation methods for selecting a crypto stock can often be overly complicated and unpredictable. By purchasing stock in a crypto ETF, one is effectively leaving the research-intensive end of picking crypto stock to the “professionals.”
Although this ETF will not include any direct cryptocurrency-related stocks, indirect investing is still a major step forward in SEC-authorized crypto investing. For the past years, the SEC never gave an inch in authorizing these types of investments due to their volatility as well as their insecurity.
The SEC’s cautious stance on regulating cryptocurrencies is well-grounded due to the recent rise in cyber attacks on cryptocurrencies. Unlike credit theft, crypto hacking is often untraceable due to the complex and discrete nature of each type of currency. In the past several months, these hacks have been put on full display. First, crypto company Poly Network, known as Decentralized Finances (DeFi) and made popular for getting rid of the “middle man” in cryptocurrency transactions, lost $610 million to hackers. Around the same time, a Japanese cryptocurrency exchange disclosed that they were hacked for $97 million.
From these two prime examples, it is understandable that the SEC remains hesitant to permit direct trading of cryptocurrencies. However, with the steady development of crypto investing being slowly introduced under the SEC’s umbrella, we can be optimistic about the future of cryptocurrency trading on more conventional platforms. The approval of Volt’s ETF created a spark in indirect crypto ETFs seeking approval. There is potential for a rise in crypto investing among not only the bold and risky but even the long-term, low-yield investors.
Photo Caption: Crypto and the Markets
Photo Credit: Pixabay