Will Bitcoin's Volatility This Month Hinder the Future of an ETF?

An individual investor, speculated to be a whale - an investor holding a significant amount of bitcoin - is said to have placed a massive sell order on Bitstamp, a major bitcoin exchange based in Europe.

The sell order caused the price of bitcoin on Bitstamp to briefly drop to $6,400, which then led contracts on BitMEX, popular bitcoin margin trading platform internationally, to be liquidated in a short time frame.

Before the mass liquidation of contracts on BitMEX, the exchange's bitcoin index was only dependent on Coinbase Pro and Bitstamp, and as the bitcoin price on Bitstamp plummeted, it consequently led the price of bitcoin on BitMEX to abruptly drop.

The SEC's rejection of a bitcoin ETF in July 2018 that was filed by the Winklevoss twins explicitly stated that the ETF did not meet the SEC's requirements concerning the prevention of fraudulent and manipulative acts and practices.

The SEC emphasized that the disapproval of the ETF proposal was not an evaluation of bitcoin or blockchain technology, clarifying that the rejection explicitly concerns the ETF filing.

Speaking to Cointelegraph in an exclusive interview, Gabor Gurbacs, the director of digital asset strategy at VanEck, an investment management firm based in New York with $47 billion in assets under management, said that the volatility of bitcoin will likely have no effect on the prospect of an ETF. Gurbacs said that millions of U.S. citizens trade and hold bitcoin on an exchange, and a strictly regulated ETF would offer more protection to retail investors.

"The current rise and decline in Bitcoin price have no barring on the prospects of an ETF. Millions of Americans hold Bitcoin on an exchange, in OTC products and other forms. Bitcoin is already mainstream. An ETF would add extra customer protections and liquidity as highlighted earlier."

ETF expert says don't wait on a bitcoin ETF. On CNBC's ETF Edge, ETF.com Managing Director Dave Nadig said that it is quite clear the SEC is in a phase wherein it is focusing on gathering as much information as possible about ETF proposals surrounding bitcoin and potentially other crypto assets.

If the rate in which the infrastructure surrounding the crypto market, particularly the institutional side, continues to increase in the short to medium term, with both companies within the crypto market and in the traditional finance sector vamping up efforts to build better custodial solutions, it could contribute to the approval of the first bitcoin ETF. The launch of Bakkt, an ICE-backed bitcoin futures market, and other strictly regulated platforms may also raise the confidence of the commission in the structure of the crypto market, as that would decrease the probability of market manipulation.

At its peak in May, the CME bitcoin futures market recorded a daily volume of over $1 billion, which is four times larger than the daily spot volume of bitcoin in early March.