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Needham Company has put together a report on the prospects of the Winklevoss twins’ proposed bitcoin ETF, and it comes with both positive and negative news for the digital bearer asset. Spencer Bogart, a research analyst at Needham Company, put together the report in response to the questions the company had been receiving from their clients regarding a possible bitcoin ETF.

According to the report, the positive effect that a bitcoin ETF would have on the price of bitcoin is vastly underappreciated, and the probability of approval is drastically overestimated within the industry.

An ETF’s Effect on the Bitcoin Price

Needham’s report describes two reasons as to why an ETF would have a profoundly positive impact on the bitcoin price.

For one, the report estimates the listing of a bitcoin ETF on the Bats exchange would see $300 million worth of assets flow into it within the first week, an estimate Needham claims to be conservative.

“While bitcoin liquidity has improved dramatically in recent years — and average daily trading volume now resembles that of the average security in the SP midcap 400 — it would be hard for the ETF’s authorized participants to acquire $300M worth of bitcoin without significantly pushing price up,” notes the report.

Needham also believes the approval of a bitcoin ETF would change the overall perception of the regulatory risk surrounding the asset. “In terms of perception, the SEC approving a bitcoin ETF would add legitimacy to bitcoin in the eyes of investors — this alone is no small matter considering that many still associate bitcoin strictly with illicit activities,” says the report.

In addition to the improved perception of bitcoin that comes with the SEC’s stamp of approval, Needham also believes a mainstream investment vehicle for bitcoin would increase the percentage of bitcoin holders in the total population. In their view, this weakens the political appetite for enacting onerous regulation.

The report states a belief that the technical constraints of sourcing the bitcoin to meet the demands of an ETF and the improved perception of bitcoin would have roughly equal impacts on the price.

But What About the Prospects of Approval?

According to their report, Needham puts the chances of a bitcoin ETF approval in 2017 at below 25 percent. The report states that this is in contrast to the beliefs held by many people whom Needham has spoken to in the Bitcoin industry.

“In terms of incentives, the SEC is tasked with protecting consumers and, in this regard, we don’t see much upside to approval for the individuals tasked with making this decision — even if the ETF is a huge success (we think it would be),” the report explains. “In contrast, if a bitcoin ETF were approved and something went very wrong it would likely reflect poorly on the SEC.”

Due to the nascent nature of the technology as well as the fear, uncertainty and doubt surrounding it, Needham thinks approval of the bitcoin ETF will be too risky a proposition for individuals working at the SEC at this time.

One caveat to Needham’s read on the situation is that the ETF will be approved if the SEC takes no action. In their view, this may be a more politically acceptable approach from the perspective of the individuals responsible for making this decision.

“That said, we understand it is extremely rare for a proposed rule change to make it to this stage — typically either the Commission makes a decision prior to the deadline or the original sponsors of the rule change withdraw the request,” the report adds.

Updated note: The research analyst and research associate who wrote the report covered in this article received compensation via Needham Company’s revenues, including investment banking revenues for Bitcoin Investment Trust, which is a competitor to the Winklevoss bitcoin ETF.

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