An Explanation of What an ETF is and Why a Crypto ETF Matters


In recent years, there have been a major debate among the investment community on the difference between active and passive management. In active asset management, investors spend their time buying and selling financial securities while in passive management, they buy indices and ETFs. As a result of this debate, the ETF market has continued to grow. In 2017, inflows to ETFs rose by almost $500 billion. This year, the number will potentially  increase as the risks in the market increase. Total assets in ETFs have risen to more than $4.5 trillion.
An Exchange Traded Fund (ETF) is made up of two parts. The Fund part means that there is a combination of financial securities. The Exchange Traded part means that these funds are publicly traded. There are ETFs of all sectors including commodities, currencies, and stocks. With an ETF, you buy a group of securities all at once.
In recent years, there have been a desire to create an ETF for the cryptocurrencies market. It all started with a company known as VanEck. This is one of the biggest providers of ETFs. It has more than $48 billion in assets. In 2015, it proposed an ETF for the crypto industry. When it submitted it to Securities and Exchange Commission (SEC), it was rejected. The SEC argued that the cryptocurrencies industry was very volatile, opaque, and would expose investors to risks.
To solve the issues cited by the SEC, the company went back to the drawing board. This year, it went before the SEC and presented the new version of its proposal. As it did this, eight other firms submitted their proposals. After looking at these proposals, the SEC rejected them. A few days later, the SEC announced that its senior managers would revisit the issue.
This week, VanEck met with the SEC to discuss about the issue. The latest proposal will have a few ways to protect the investors. First, it will be targeted towards institutional investors. To do this, the ETF will have a starting price of $200,000. Second, it will be listed at a major exchange, the CBOE.
A cryptocurrencies ETF is important because it would potentially attract more interest from the institutional investors. These investors don’t have a way to invest in crypto right now. This is because their only option is to use the exchanges. These exchanges have proven to be less secure. In fact, more than $700 million has been stolen this year from the exchanges. It is also important because it may attract more participants such as sell-side analysts to the industry.
In recent months, a number of large institutional investors have announced their decision to move into cryptocurrencies. In the past quarter’s earnings, Blackrock, which manages more than $6 trillion in assets announced that it was considering investing into cryptos. At the same time, big Wall Street firms such as Fidelity moved to enter the industry. This month, Fidelity announced that it had created a new company to offer custodial services for cryptocurrencies.
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