Now that the SEC has rendered its verdict and rejected the Winklevoss Bitcoin ETF (Pending:COIN), it’s fair to wonder what happens in the cryptocurrency markets now. The SEC clearly isn’t comfortable with the unregulated markets that bitcoin and other alt-currencies operate in. Does bitcoin need to come in under SEC regulation in order to gain wider acceptance? How long will it be before a bitcoin ETF gets approved? Are there other alt-currencies that could emerge?
I was able to get answers to those questions and more from ICONOMI co-founder Tim Zagar. ICONOMI is a digital assets management platform, providing the simplest way to invest into the decentralized economy and allowing users to create their own Digital Asset Arrays™ (DAA) from a wide variety of digital assets. I want to thank him and his crew for taking the time out of their days to discuss the cryptocurrency markets.
The first question was asked prior to the SEC’s decision on March 10. It’s a little out of date but does reflect his company’s confidence in the future of bitcoin.
How do you see the Winklevoss ETF affecting the cryptocurrency industry?
Response: Whether the SEC approves or rejects the pending Winklevoss ETF application, this is a good thing for the industry. Why? – Two reasons. First, it is surefire endorsement that bitcoin is becoming more mainstream and will continue to do well into the future. Second, if it does get approved, it will open doors to fresh money and provide a great way for institutional investors to get involved. Regardless of the March 11 decision, I’m confident Bitcoin ETFs will be commonplace in the coming years.
From here, we deal with more post-rejection topics.
How do you think the rejection of the Winklevoss ETF has affected the entire cryptocurrency industry?
Response: With all the media attention surrounding the Winklevoss ETF decision, it would appear it only increased the interest of the (common) populace, which goes to show how fascinating the cryptocurrency industry is. Despite the SEC rejection, more fresh capital is pouring into cryptocurrency than ever before. I think the SEC missed a great opportunity in making its first step towards a cohesive regulatory environment.
Do you think there could be an altcoin ETF in the future?
Response: It’s definitely going to happen in the future. First of all we need to divide altcoins into two groups: Ethereum and others. I think several will be available over the next decade, but the first to arrive will be an Ethereum ETF. When a bitcoin ETF is approved and large investors get a taste of bitcoin, they will look for investments in other cryptocurrencies too; we see Ethereum as the next clear choice. Ethereum has value, clear differentiation, strong community behind, blue chip backing, and people are trading it at high volumes as we speak. The odds are that once investors understand the true value and future potential of bitcoin, coupled with the fact that people like to have options within their financial portfolios, we see an Ethereum ETF as the next cab off the rank.
You say an ethereum ETF is the “next clear choice” in altcoin funds. What does an ethereum ETF need to do to gain SEC approval given how the bitcoin ETF failed?
Response: Establishing a new asset class is the best and most systematic approach, because it will enable the regulators to significantly move forward in the cryptocurrency industry. Doing this will be easier with Ethereum than Bitcoin, which is mainly a “transfer of value token”, while numerous projects being built on top of Ethereum have significantly more substance and more real-world use cases. Having feature rich projects gives the lawmakers a lot more to work with, making Ethereum the better choice.
The SEC was very clear in its ruling that it was concerned with the lack of regulation in the bitcoin market. Does bitcoin need to come under SEC regulation before we see an ETF coming to market?
Response: The SEC is concerned about the lack of regulation, while at the same time rejected a bid to bring more regulation into the field. If you look at the number of U.S. based crypto exchanges, there is no doubt there is a lot of interest even among the U.S. citizens. It is also in the best interest of everyone that the cryptocurrency industry gains more regulatory clarity sooner rather than later; with a higher entry barrier, it would help separate serious participants from fraudulent ones and protect investors, which is the primary purpose of the SEC. The issue as I see it is that this cannot be done half-heartedly. Because of the uniqueness of the assets, a new asset class has to be defined and regulated. Forcing crypto assets under existing regulation will always result in rejection.
There are a few places in the retail space that are accepting bitcoin as a means of payment but, for the most part, it’s still just a speculative trading vehicle. How long will it be before bitcoin or some other alt-currency gains mainstream acceptance?
Response: The times when we thought Bitcoin will solve retail payment hurdles are long gone. Serious projects are being developed that leverage blockchain technology against problems we were not able to overcome before (or the solutions were cost prohibitive), and 80% of them are using Ethereum. We are seeing companies using blockchain to compete with services such as Dropbox or Amazon AWS, IoT development is in full swing and prediction markets are being built on completely different levels than before. In simpler terms mainstream acceptance is already here in a way, but the end users are often not aware of it.
Why will digital asset management platforms be the way of the future?
Response: This will be the next step after bitcoin and ethereum ETFs. Digital asset management platforms will greatly improve the way a growing number of traders and investors manage their cryptocurrency portfolios. When the internet initially came out, there was no need for a company like Google or Yahoo to take care of all the management because their was just a few sites in the beginning. Then we saw an explosion of sites, and that called for complete restructure. We are witnessing a parallel situation in the crypto space; with a plethora of new assets popping up, we need a way to organize all underlying assets, and the only way to do that is through a digital asset management platform. At the moment there are 3500 stocks in the USA; you can organize them by applying funds, which is great and now an industry standard… But what can people do with so many new cryptocurrencies? We need a new method to reduce the complexity and that method is a digital asset management platform; a way to structure and organize arrays of high performing digital currencies in a way that is easy to understand and easy to attract buyers and sellers.
Wrap-up and My Thoughts
Etherium is an interesting option in the alt-currency space. For those unfamiliar, ethereum, like bitcoin, is a blockchain network. While bitcoin focuses on currency exchange, ethereum runs the code for any decentralized application. Ethereum has differentiation because it can be used more broadly. It can be used to run many applications whereas bitcoin is more or less a currency exchange vehicle. I would tend to agree that an ethereum ETF would have a better chance of passing but there appears to be no imminent option yet. The application for the EtherIndex Ether Trust was filed in July 2016 but there has been little news on it since the filing. It’s probably coming but who knows when it will arrive. It’s also interesting that the price of ethereum has shot up significantly over the past week. Since March 8, the price of ethereum is up 70%.
The last point Tim makes regarding digital asset management platforms is a good one. Bitcoin is the most popular cryptocurrency, ethereum is emerging as a more robust second option and any number of others are competing for recognition in the space. I think this could play out like the early days of the internet where tons of internet businesses emerge before a period of consolidation condenses the alt-currency market to a few major players.
Regarding the bitcoin ETF, I think the issue of industry regulation got pushed right to the forefront with the Winklevoss fund rejection. I’d expect we’ll see a larger scale effort to clean up some of the existing issues before making a renewed push toward fund approval. The market certainly seems ready for a bitcoin ETF although I was a bit taken off guard by how strongly the SEC came out against the regulatory environment. Interestingly, the SolidX Bitcoin ETF is due an SEC decision by March 30. It’s difficult to see how that one gets approved in light of the Winklevoss ETF rejection.
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My sincere thanks again go out to Tim Zagar and ICONOMI for sharing their thoughts here. If you’re interested in more ETF analysis and interviews with other ETF industry insiders and research analysts, please consider following me by clicking on the “Follow” button at the top of this article next to my name. Even if you don’t, thanks for taking the time to read!
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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