The companies plan on pricing the ETF at around $200,000 per share. With that type of minimum, XBTC would likely only be realistically available to wealthy and institutional investors. It’s sort of a band-aid solution to the retail investor issue, but it does help keep the small guys away initially while the SEC gets a chance to evaluate how well the product works.
But this may only be a temporary solution. Note what VanEck CEO Jan Van Eck says in that same interview.
ETF.com: Regarding the share price, is there any guarantee you won’t do a reverse split to bring it down?
van Eck: That’s a conversation we need to have with the regulators to see whether or not that’s an effective answer to one of their concerns.
A simple reverse split could quickly bring the price down to a level where it opens the floodgates to everybody. I’m guessing the SEC is well-aware of this possibility which would make the high price tag not quite the big deal it might appear to be.
The presence of portfolio insurance
This is another acknowledgement of the risk of theft and hacking with respect to cryptocurrencies. According to the fund’s SEC filing, the trust will maintain a crime insurance that will cover the loss of bitcoin due to “theft, destruction, bitcoin in transit, computer fraud and other loss of the private keys that are necessary to access the bitcoin held by the Trust”. The initial policy will cover losses up to $10 million, but will increase as assets in the trust rise.
This will be an especially appealing aspect to XBTC. If the SEC is concerned with how the unregulated nature of bitcoin could pose additional risks to investors, the presence of theft insurance should help regulators feel much more comfortable.
Conclusion
I applaud these two companies for creating a bitcoin ETF proposal that specifically addresses each of the SEC’s major concerns, but the question, as ever, will be is it enough?
I think the fund’s fraud insurance will be XBTC’s biggest selling point. Whenever bitcoin gets stolen or an exchange gets hacked, it makes the news. The SEC will want to avoid any bad PR by watching the ETF it approved plunge in value. I think it’s important to also note that while bitcoin theft would be covered by insurance, the drop in the value of bitcoin that could come with the news of a hack would not. Insurance or not, there’s still risk.
The index aspect of the fund is a nice touch that should address some of the pricing concerns, although I think the high price of the ETF isn’t as big of a deal of some might think since it can easily be dropped.
XBTC is going to be the industry’s best bet to date for getting a bitcoin ETF approved. Given the SEC’s lack of enthusiasm for cryptocurrencies, I’m still skeptical that, despite all of its improvements, this ETF gets approved. I have little doubt that a cryptocurrency ETF gets approved in the U.S. eventually (after all, they already exist in Europe and are, by all accounts, successful), but I’m not sure that now is the time.
This article was republished with permission from Dave Dierking:
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