This week could prove to be be monumental in the world of bitcoin and blockchain finance. An industry that has be largely unregulated (at least in terms of the Security Exchange Commission), will now seek approval by the SEC to create an ETF for bitcoin, which will make it widely accepted as a mainstream method of commerce. The SEC’s decision on March 13th could essentially create a new market for bitcoin-based securities; a stock-market style trading system for bitcoin.
When it comes to Bitcoin the SEC may stand at a crossroads that is unique to the history of securities trading. The intersection of regulation, enormous wealth, and decentralization are playing into a new financial narrative that will come to define cryptocurrency going forward.
What is happening to the value of Bitcoin?
When it comes to tradable assets, bitcoin is still in its infancy especially when compared to other Wall Street securities. However, there has been a lot of optimism in terms of the value that bitcoin has created. On March 3rd, the value of bitcoin overtook the price of gold.
Other investors are claiming that 2017 has been a record year for bitcoin, with its dollar equivalent (there is no constant value assigned to bitcoin–it differs depending on its application) rising to nearly $1,300, according to a bitcoin news service. Some believe that if the SEC were to approve a bitcoin ETF this figure could perhaps even double in the coming months.
What (or who) is behind this growth?
While the value of Bitcoin has been steadily rising, much of this exponential expansion could be due to the speculation regarding the SEC’s decision.
The proposal to create a ETF for bitcoin was championed by Tyler and Cameron Winklevoss, the twin brothers widely known for their feud with Facebook founder Mark Zuckerberg in during Facebook’s formative years. The Winklevoss twins met with the SEC to negotiate approval for their own Winklevoss Coin Trust (COIN), a virtual currency fund that would be one of the first firms to venture into a newly approved bitcoin marketplace. COIN is expected to trade on the Bats Global Market, a market widely regarded as “an alternative to the New York Stock Exchange (NYSE).”
In addition to the COIN, there are also two other firms waiting with bated breath on the word of the SEC: The SolidX Bitcoin Trust and the Bitcoin Investment Trust. These two firms would expect to be traded on the NYSE.
A Bitcoin identity crisis?
Bitcoin itself has cultivated a type of anti-establishment identity–it is a self regulating and self enforcing system that has no central authority. While bitcoin miners are compensated for tending to the enormous amounts of data that flow through these networks, their process actually helps strengthen the security of the blockchain. Self-interest (in this case, compensation for solving puzzles) helps protect the integrity of the blockchain and all the transactions concealed within it.
In one sense, the Winklevoss’ plan to trade bitcoin securities on the Bats Global Market speaks to the decentralized ethos of blockchain finance. Bats was created as an alternative to the NYSE and NASDAQ, citing the “increased consolidation” of the markets in the US, according to Marketwatch. When faced with the alternative of trading on the NYSE, the Winklevoss’ proposal (which was first introduced in 2013) represents a different spin on bitcoin trading when compared to The SolidX Bitcoin Trust and The Bitcoin Investment Trust.
Yet some bitcoin enthusiasts are even more wary of what an SEC-approved ETF for bitcoin might mean. One bitcoin-based forum provided that government intervention in the bitcoin system is contrary to the mission of bitcoin and blockchains to begin with. On the forum abovetopsecret.com, this poster wrote:
“Bitcoin is supposed to be decentralized and beyond manipulation by any group or government. Its touted as the answer or counter to the central banksters… They should hate it!”
How does the SEC fit into this picture?
The argument championed by some bitcoin traditionalists lies in bitcoin’s own blockchain architecture. The architecture of blockchains themselves are intended to eschew central control or authorization. Instead, it relies on thousands of individual nodes (bitcoin miners) that come together to oversee the integrity of the blockchain.
It is this system that makes it virtually impossible to alter a blockchain ledger retroactively–and also nearly impossible to impose one singular authority, like the SEC. Agency in a bitcoin network is given to the individuals in the network who have a vested interest in maintaining it–there is no guise of altruism or regulation, and as a result the system is self-enforcing.
This is perhaps why many are skeptical that the SEC is not likely to approve the idea of a bitcoin-based ETF. In fact, many are placing the odds at (you can bet on the decision online) around 36 percent. While the market value of such an ETF may be incredible, the capacity for regulation (especially by a central agency like the SEC) remains a huge question mark that may halt this proposal.
The odds are not in favor of this new market, but the potential for earnings seems to be unprecedented. As we move toward March 13th speculation may increase, with the future of cryptocurrency’s identity hanging in the balance.
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