July 16, 2018
After the CBOE and CME were given the green-light on futures, it's imperative for a healthy, robust market to have more ways than one to invest directly and indirectly into a given underlying, especially when there is demand for that underlying at the institutional level yet no infrastructural way to invest for large accredited institutions.
This ETF is also a very low-risk (de-facto institutional) way to invest considering the immense amount of funds one is required to put up in order to invest.
Several jurisdictions globally, including South Korea, China, and Japan, have since clarified or since given much clearer guidance on what a cryptocurrency is, who is allowed to invest, and most importantly, increased scrutiny from an AML KYC perspective. The more avenues there are for large institutions to come in who tend to be longer-term investors (especially pension funds), the more stable the price will be once it reaches a critical mass of investable funds considering many large institutions will not be swayed by short-term price swings, which can cause irrational panic selling.
A large section of retail and non-professional investors will often look to the discretion of large institutions when making a potential sell decision, thereby lowering the total impact of volatility over time.
Additionally, the approach used by SolidX to only use Bitcoin as an initial foray into an ETF comes at a critical juncture when the SEC has previously deemed BTC not a security. Just like any other commodity or currency ETF, insurance can be provided and priced appropriately by carriers in case the custodian goes bankrupt which covers one of the SEC's concerns on previous attempts at ETFs.
Fortunately, this ETF product is backstopped by world-renowned institutions and this would mark a very intelligent approach by approving VanEck/SolidX/CBOE's ETF, as it would set a certain standard and eventually allow more stable cryptocurrencies which are similarly not deemed securities to eventually be included in a basket ETF approach in the future slowly allowing investment penetration into deeper and deeper assets in the crypto space eventually creating a lower-than historical volatility in the entire space that will have a net positive impact on the entire crypto space as they mostly tend to trade with extremely high correlation for the time being to bitcoin. Over time this correlation should reduce as the fundamentals of each crypto project has real-world use cases, but until that time, an ETF that helps to foster stability could shore up prices for more sensitive cryptos that are being sold off irrationally thereby reducing losses for many investors and reducing the impact of articles that can be written both on the side of exuberance or on the side of extreme negativity for any given cryptocurrency as institutions will tend to have access to the best kinds of research and information. These articles or news headlines which at times can be far from true can have negative feedback loops to the price of Bitcoin and then have a negative feedback on price to other coins as the price of bitcoin feeds into a downward spiral or negative shock.
All in all, approving an ETF will increase scrutiny of other cryptocurrencies as many of the top coins will strive to have standards that match Bitcoin and other SEC-approved coins which will also drive adoption of traditional brokerage KYC AML standards as they'll want to cater to clients and investors who will one day be allowed to invest in an ETF at the retail level as most brokerages globally continue their efforts to match traditional financial brokerage houses from an informational perspective.