What is an ETF?
An Exchange-Traded Fund is, as the name implies, a fund that is traded on public exchanges. A fund is an investment vehicle whereby investors pool their assets for the purpose of making profit off them. An issuer, or an investment manager, controls the fund on behalf of investors.
Funds are a way for investors to benefit from a fund manager’s expertise. Funds are securities and therefore subject to regulation. This means that before an ETF can be publicly tradable, its listing on an exchange must be approved by an appropriate body, e.g. the SEC in the U.S.
What are the challenges?
To identify whether an ETF is eligible for trading, the SEC considers its investment objectives and strategies. The SEC wants to make sure that an ETF implies minimal risks for potential investors. For example, recently the SEC rejected the Winklevoss ETF because they were concerned with the fact that the Winklevoss twins were involved in too many aspects of the fund, which could lead to conflicts of interest.
Currently, there are four crypto ETFs waiting for the SEC approval: Direxion, GraniteShares, Van Eck, and ProShares. The Winklevoss ETF has been rejected twice, and the Bitcoin Investment Trust and Rex Shares have withdrawn their applications.
Approval of ETFs is believed to be the next step on the way to the widespread adoption of cryptocurrencies. Much like last year’s bitcoin futures, ETFs are financial instruments that bring much-needed stability to the cryptocurrencies market. ETFs create a gateway for traditional investors into the world of cryptocurrencies.