April 17, 2017
Bitcoin ETF Denied by SEC, Ethereum Surges
On March 11, the Securities and Exchange Commission denied a request to list what would have been the first exchange traded fund (“ETF”) to track bitcoin. Bitcoin is a virtual currency that can be used to move money around the world, without the need for a central authority. The underlying technology in bitcoin is a decentralized blockchain used to verify and process transactions and contracts. The SEC decision was the culmination of a four-year attempt by the Winklevoss twins of Facebook fame to create a bitcoin ETF, which would track an index, or basket, of assets but trades like a stock. The commission rejected the ‘Winklevoss Bitcoin Trust’ because many markets outside the U.S. where Bitcoin currently trades are unregulated. The lack of such regulation, the commission said, raised “concerns about the potential for fraudulent or manipulative acts and practices in this market.” The commission noted that while Bitcoin was still in the relatively early stages of development, over time, regulated Bitcoin markets of significant size may develop. Finally, the commission added that it would reconsider a Bitcoin ETF in the future, which gave the Winklevoss twins encouragement to continue their pursuit.
Within a few minutes of the SEC’s announcement, the price of a single bitcoin tumbled more than 15% to around $1060, after reaching a high of above $1300 in the recent weeks in anticipation of SEC approval of the ETF. Bitcoin has since recovered much of that lost ground, and was trading near the $1250 less than a week later. While the bitcoin ETF could have helped stabilize Bitcoin prices, the SEC’s job is to protect investors from fraud and other threats. Regardless, the rejected of the Bitcoin ETF has shaken confidence in the virtual currency, and trading volume is down sharply in 2017 compared to 2016. These events have created an opportunity for another digital currency, Ether, to emerge as the new darling of investors.
Ether is the digital currency that serves as fuel for the “for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations.” Ether is traded on many of the same platforms as Bitcoin, and recently was valued at above $44 per ether, giving it a market capitalization of $4 billion, second only to Bitcoin’s market cap of $18.9 billion.
Ethereum’s recent rise has been fueled in large part by the recently announced Enterprise Ethereum Alliance, “which will create a standard version of the Ethereum software that businesses around the world can use to track data and financial contracts.
Over 30 major companies including Microsoft, JP Morgan Chase, Intel, ING, and UBS have signed onto the alliance, which will compete with another blockchain supported by companies like IBM. The creation of the enterprise, combined with the rejection of the Winkelvoss ETF, has boosted ether’s value immensely, more than doubling the currencies value in the past week alone. Whether this spike is just a result of unfounded optimism or a sign of the future, Ethereum’s adoption by the business community is a great sign for investors and the digital currency enthusiasts alike. Ethereum may not unseat Bitcoin due to the latter’s popularity and length of existence, but the recent weeks have shown that Ethereum may be the digital currency of the corporate world, and could serve as an excellent investment if nothing else.