Investing in bitcoins without owning them: ‘The chance of manipulation remains’

The SEC has given its first approval for a bitcoin ETF. This is a special product with which you can invest indirectly in bitcoins.

Seven questions and answers about the bitcoin ETF to Teunis Brosens, bitcoin expert at ING.

1. A bitcoin ETF: what exactly do you invest in?

“With an ETF (Exchange Traded Fund), you follow an underlying index as an investor. That could be the AEX, for example, but in this case it concerns futures on bitcoin. So you do not invest directly in bitcoin.”

2. What are futures?

“A future is an agreement to trade a certain investment, such as bitcoin here, at a price that has now been agreed. The futures in which the bitcoin ETF invests, in turn, invest their money in real bitcoins, whose price you can use daily can follow.

So, roughly speaking, futures are a kind of options, but with a high risk. In principle, you can sometimes lose more than your investment. Futures also involve significant amounts.”

3. Why is it so complicated?

“The bitcoin market is not regulated, which means that in principle there is no supervision of what buyers and sellers do. Many large investors, such as pension funds and insurers, are not allowed to invest in such a market. But futures are a regulated market. market, with supervision. With the US stock watchdog SEC clearing bitcoin ETFs, more investors can invest in them.”

4. Does it matter to private investors?

“For individuals who already have an account with a well-known crypto exchange, the news is not that interesting. But there are also a lot of private individuals who are still a bit hesitant about buying cryptos and prefer to invest through their own bank. It is possible for them. But both the futures market and the issuer of the ETFs also want to make some money, so that depends on what you have left as an investor.”

5. Do you run more or less risk with an investment in a bitcoin ETF?

“Because the market for futures is regulated, manipulation is not allowed and investors are better protected there. But the price of the futures is again driven by the price of bitcoin and the expectations that exist in which direction that price will go. as far as the price of bitcoin is driven by manipulation, you get some of that.

But that manipulation is often short-term. Sometimes during the day, you are less bothered by that. But if Elon Musk tweets and the price of bitcoin shoots up and that takes a few months, then you have to deal with that in the futures market and therefore with your bitcoin ETF. So you certainly don’t completely rule out the influence of the unregulated part.”

6. How important is this step for bitcoin?

“Quite important. It is a step that makes bitcoin more accessible to a wide audience: large investors who are not allowed to invest directly in bitcoin and individuals who are still a bit hesitant. For the longer term it is difficult to explain otherwise than a positive development. for bitcoin. It will drive greater adoption and interest in bitcoins.”

7. What can this do to the price?

“Since it was announced last Friday that the SEC would consider clearing the bitcoin ETF today, there has been some speculation that approval would likely come. which has skyrocketed too much, and it is difficult to say anything about it in the short term.

But I think it’s an important step for the longer term. More interest is ultimately positive for the price and broader it is also good for the acceptance of bitcoin and other cryptos.”

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