Bitcoin on Fire

The possible launch of a Bitcoin ETF is pushing the price to record highs
March 9, 2017 12:46 pm Last Updated: March 18, 2017 3:38 pm

For those not familiar with blockchain technology, bitcoin is just bits and bytes being traded for real dollars. However, a new development will make the most popular cryptocurrency more and more mainstream.

The cryptocurrency is up more than 30 percent since the beginning of the year.
The cryptocurrency is up more than 30 percent since the beginning of the year.

At the end of the day, all currencies are electronic nowadays. Actual physical cash only makes up a fraction of commercial and financial transactions. Credit cards and wire transfers dominate the way we transmit value.

Bitcoins are also electronic, but instead of the transactions being approved by two banks or one credit card company, a whole network of decentralized participants decide whether a transaction is valid or not and get rewarded for doing so. 

This feature makes the cryptocurrencies unique, as they reside outside of the banking system and, before 2013 they were outside of regulatory supervision, too. A couple of years on, the Wild West days of crypto are over, and bitcoin is pushing to become mainstream.

Bitcoin ETF

Entrepreneurs Cameron Winklevoss (L) and his brother Tyler Winklevoss  in New York City on Nov. 13, 2013. (Andrew Burton/Getty Images)
Entrepreneurs Cameron Winklevoss (L) and his brother Tyler Winklevoss in New York City on Nov. 13, 2013. (Andrew Burton/Getty Images)

The Security and Exchange Commission (SEC) is set to decide on a bitcoin exchange-traded fund (ETF) on March 11, although the news may not be released until March 13. Early bitcoin investors Cameron and Tyler Winklevoss have been waiting for a decision regarding their Winklevoss Bitcoin ETF for years. If approved, it will have 10 million shares for $10 each—a market capitalization of $100 million, or 0.5 percent of the current total bitcoin value.

Early bitcoin backer Trace Mayer, host of the Bitcoin Knowledge Podcast, thinks the Winklevoss twins have fulfilled the wishes of the SEC and that the product will be approved. “There has been so much back and forth, the SEC has told them what they need, and they decided to comply with the SEC demands,” he told Epoch Times.

He says online betting contracts rate the chance of approval at 70 percent. In addition to the Winklevoss ETF, there are two other applications pending, at least one of which the SEC should also approve, according to Mayer. “The reason to approve two is that there will be competition in the ETF market.”

The ETFs will be hugely bullish for bitcoin. It enables a lot of institutional money to come into the bitcoin market.
— Trace Mayer
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One is from bitcoin advocate Barry Silbert and his Digital Currency Group, which filed an application with the SEC for Grayscale’s Bitcoin Investment Trust in March 2016. The other is by SolidX Partners Inc., a U.S. technology company providing blockchain services.

The cryptocurrency has gained 30 percent this year to $1,200 and briefly touched a new all-time high at $1,295. Bitcoin enthusiasts also celebrated the fact bitcoin temporarily surpassed the price of 1 ounce of gold, which was trading at $1,226. This move is merely psychological, however, as the total value of all gold is around $6 trillion, whereas the total value of all bitcoins is $20 billion. [UPDATE: The SEC made an early decision Friday, March 10, and rejected the Winklevoss ETF. Bitcoin is now trading at $1081]

However, even if all bitcoins aren’t worth as much as all gold just yet, the ETFs will boost the bitcoin price even further. “The ETFs will be hugely bullish for bitcoin. It enables a lot of institutional money to come into the bitcoin market,” said Mayer.

Big investors like pension funds and insurance companies can’t easily invest in bitcoin directly because of stringent regulations. If the bitcoin ETFs attract as much institutional money as the most popular gold ETF (SPDR Gold Trust, worth $33 billion), the total market cap for the cryptocurrency could easily double.

Mayer thinks the approval by the SEC would blend well with President Donald Trump’s deregulation theme, also in financial services. “It could be helpful for creating jobs, instead of killing it with regulation. I think they will approve it,” he said. 

Value Proposition

But bitcoin isn’t just for trading and investment, or even gambling, as some people think.

People use it as money to pay for goods and services. According to bitcoin payment provider Bitpay, more than 100,000 commercial transactions took place per month at the end of 2015, up from less than 1,000 at the beginning of 2013. In 2015, more than 100,000 merchants with more than $197 billion in total revenues used bitcoin, according to the latest CoinDesk report.  

Why are merchants switching to bitcoin over traditional methods? It’s cheaper, faster, and more secure. Bitpay charges merchants a 1 percent transaction fee compared to credit card fees in the 2.5 to 3 percent range. And the settlement takes minutes rather than days.  

“In terms of time, money, and privacy, bitcoin is better than all the alternatives,” said Mayer.

But like the early days of gold and silver money, it will take time until the currency is distributed widely enough for it to become more stable in value. Unlike a dollar in a checking account, which only loses value gradually to inflation, bitcoin can crash 30 percent in a single day, only to double over the next two months.

“It will just take some time, but everything with bitcoin is growing at a fast rate,” said Mayer.