Liftoff: How a Traditional ETF Can Send Bitcoin to the Moon

With the emergence of bitcoin-based Exchange-Traded Funds (ETF), chatter from observers suggests that the activities coming from these investment funds could double the bitcoin price, if not more.

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Bitcoin ETF: Prepare for Liftoff

The most high-profile of these funds is the Winklevoss ETF, which has been waiting for SEC approval. While the possibility for rejection still exists, the ETF is expected to get approval in coming months. Either way, the SEC must make a ruling by March 2017.

Some believe the implementation of a bitcoin-oriented investment vehicle like an ETF could as much as double the price of the cryptocurrency.

This is due, in part, to the belief that widely-traded stocks of bitcoin will further legitimize the currency by offering different avenues for people to invest in, as well as making it less intimidating and obscure to newcomers.

However, there is another reason, one that appeals more to mainstream outlets. The history of commodity-based ETFs such as gold, considered comparable to bitcoin as an investment vehicle, shows that once an ETF for a commodity is launched, that asset’s value increases significantly due to buying demand from the fund.

That is exactly what happened in the early-to-mid 2000s, when ETFs for commodities such as gold, silver, oil and natural gas brought huge value increases for their respective assets.

Applying that history to Bitcoin, it is plausible for the launch of an ETF to provide an opportunity for a “moonshot moment” in regards to the cryptocurrency’s price.

The Moonshot Impetus

After taking a deeper look at this historical claim, there seems to be some validity behind it.

Take gold, for example. Before the introduction of its ETF investment vehicle, it had been stuck in a price range of around $300 to $400 for the previous 15 years. That’s a long time, and it also provides some significant credibility to the belief that gold’s price surge was due to the ETF. This is especially true if you consider the fact that only 2 years after the launch of SPDR Gold Trust, the price of gold reached $600. After another two years, gold rose to $900.
liftoff ETF
The same trend can be seen with silver as well, having shot up from about $8 in August 2005 to over $14 by March 2006. Two years later, silver was trading at over $20. It too had been limited to a certain price range for 15 years prior to its ETF, but this soon changed after its introduction.

These price increases were likely the result of new, previously unseen capital flowing into the commodities through their investment vehicles. Thus, history suggests that a successful bitcoin ETF should actually expand the currency’s market, bringing people into the bitcoin economy who previously had never been a part of it.

So get your moon boots ready, we could be in for the ride of a lifetime.

Do you think bitcoin ETFs will create a watershed moment for the currency? Let us know in the comments bleow.


Source: Money Morning

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