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Bitcoin ETF News: The Good, the Bad and the Ugly

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For the past year, the cryptocurrency media’s mood has been swept along on a rollercoaster of Bitcoin ETF headlines. Considering the severity and the timespan of the coinciding crypto bear market, the desperation for an imminent ETF approval comes as no surprise.

Although it’s understandable that many of us would pin our hopes on a crypto ETF as catalyst for a dramatic turnaround of market sentiment, the historical context shows that our wishes may be both premature and misdirected. Let me explain.

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Reality Check: ETF Approvals within Historical Context

Announcements of crypto ETF applications have become more frequent than ever before, and yet the first proposal for a Bitcoin ETF was filed already on the first of July 2013 by the Winklevoss Bitcoin Trust. Since then, at least eight other firms (SolidX & Van Eck, Grayscale, ProShares, Direxion, GraniteShares, First Trust, REX Shares, and Bitwise) have submitted their own proposals with the United States’ Securities and Exchange Commission (SEC). To date, every single proposal put before the SEC regulators has either been denied, withdrawn, or is pending a (delayed) decision.

While the almost 6-year wait may seem harsh and hopeless, Bitwise Asset Management, the first company to launch a crypto index funds and the most recent firm to file for a Bitcoin ETF, casts the delay in a different light:

The truth is that every “first” in the ETF industry was preceded by multiple years of struggle. For instance, it took:

  • More than six years between the first filing for a leveraged ETF and the first SEC approval;
  • Nearly six years between the publication of the SEC’s first “conceptual release” on actively managed ETFs and the approval of the first active ETF;
  • Nine years between the launch of the first ETF and the launch of the first fixed-income ETF, despite significant efforts in the interim.

Reality Check Take 2: Crypto Market Maturity

The history of long waits above already adds a more realistic perspective to the potential of a crypto ETF approval. Apart from this historical context, an honest look at the crypto industry’s present developmental stage shows that hopes of an imminent crypto ETF launch are probably premature.

On his view of the present state and long-term view of the crypto industry, Bitstocks’ Cryptocurrency Investment Associate, Stephen Ierotheou stresses that the “Market is so much in its infancy that it would be unnatural for an ETF to be approved.”

Cryptocurrency Portfolio Manager, James Coughlan is much in agreement, emphasising the importance of focussing on the industry’s long-term development instead of short-term goals:

“The one thing I like to instil in potential and current investors is that this market is very much in its infancy. To be concerned about (things like) the price at this point is not the right way to evaluate the situation. What we need to be focussing on is the technology and the way that the technology is growing on a day-to-day basis with some fantastic developers working on crypto projects, and the future will only get better.

When a tech is in its very early stages, you can’t expect it to kick-off and be perfect from day one. My major point is, not to worry about the price because it’s the tech that matters. Providing we keep seeing infrastructure get built around the industry and development work happening, the price will pick up at some point.”

The Good, the Bad, and the Ugly of Crypto ETFs and Derivatives

Although it may still be a long wait to see a crypto ETF in action, it is not too early to think about the potential impact on the industry. Will the launch of a crypto ETF pave the way to a golden age or will it become reminiscent of the old Yiddish curse, “May you get what you wish for”? Let’s imagine the potential outcomes.

The ‘Good’ of Crypto Derivatives

If we consider the view that the crypto industry’s lack of regulated custodianship services and investment products is keeping institutional investors such as major banks from investing in crypto, it is not illogical to hope for a flood of new capital once this obstacle has been removed.

The launch of a Crypto ETF and even the NYSE’s launch of the Bakkt exchange, will decrease counterparty risk, improve liquidity, provide easy on and off ramps, so putting the industry in a much more robust position to cater for institutional investors. Having trusted exchanges in place will also clamp down on the price manipulation we have seen around Bitcoin futures contracts, and could even settle the accompanying price volatility.

In the long-term, having a crypto ETF in place could be expected to make a hugely positive contribution to the financial element, the price, of Bitcoin.

The ‘Bad’ of Crypto Derivatives

The first problematic aspect of crypto derivatives such as ETFs and Futures contracts is the question of whether these will represent actual cryptocurrency holdings. In cases where a derivative merely tracks an index or a basket of cryptos according to price without buying the underlying assets (such as with CFD’s), capital inflows seem improbable.

A second, and even more problematic aspect, is the focus on short-term trades instead of long-term investment.

Crypto ETF news headlines have fueled an enormous amount of price speculation, as can be seen from the significant market drop-offs following previous SEC delays and disapprovals. It’s clear that a large proportion of the market is currently held by day traders and speculators who are motivated by short-term profit with little or no interest in contributing to the development of the crypto industry.

While I’m pretty sure no crypto advocate will scorn a bull market, those who are involved in building on and developing the technology know that we’re only scratching the surface of blockchain’s possible applications at this point. The current bitcoin price, in comparison, is probably the least enticing aspect. In actual fact, Bitcoin is a slice of technological infrastructure that just so happens to have a tokenised monetary system attached to it. The monetary aspect is not the be-all and end-all of its utility.

The crypto ETF obsession risks diverting our attention away from uncovering and unleashing blockchain technology’s untapped potential, instead bolstering the speculative mania of #whenmoon #whenlambo.

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The ‘Ugly’ of Crypto Derivatives

In the early stages of crypto derivatives and the run-up to the launch of the first crypto ETF, many unanswered questions and lingering concerns remain. Certain risks deserve serious consideration as there is no going back once Pandora’s box has been opened.

For a start, traditional financial markets, derivatives (more specifically, the institutions that sell them) have gained a track record for causing chaos despite the regulatory measures that are in place. Future markets, in particular, are vulnerable to manipulation by big institutions. In November 2017, Credit Suisse’s foreign exchange business was fined $135 million for market manipulation. In December of 2016, regulators ordered Goldman Sachs to pay a civil penalty of $120 million to settle charges of manipulating a global dollar benchmark. And in 2013, an Italian regulator fined the world’s biggest money manager, BlackRock 150,000 Euros ($204,600) for market manipulation.

Apart from the risk of outright market manipulation, crypto derivatives could also be implemented in a way that undermines Bitcoin’s primary economic principles. Bitstocks’ CEO and Founder, Michael Hudson’s places primary on the social and personal value of the Bitcoin economy, illustrating what we’ve got to lose:

“Humans innately do not trust the system, because everything is registered to a centralised database — i.e., the world’s governments — and we do not have full ownership because items like our cars or our houses can be taken away from us. In contrast, with the use of blockchain, we own what we own — no questions asked. Bitcoin’s byproduct is sovereignty over what you acquire.”

In the case of crypto ETFs, in contrast, holders merely own a promissory note. The institution’s actual crypto holdings remain opaque, and investors simply have to ‘trust’ that their promissory note is backed up by the underlying asset at the agreed-upon rate.

In effect, the situation negates the ‘trustless’ element of cryptocurrencies like Bitcoin. It also opens the door for institutions to issue more promissory notes than reflected by assets under management, which would corrode the value of assets in circulation by increasing the supply with ‘magic money’. And just like that, we’d be saying farewell to Bitcoin’s deflationary monetary model and hello to the old Fractional-Reserve Banking system.

‍The Long-Term Fate of Crypto

As a company that supports the long-term vision of Bitcoin to maintain an inclusive, uncensored, permissionless network, we firmly believe that the long-term fate of Bitcoin and cryptocurrency will not be decided by the approval or rejection of an ETF. The determining factors will be the utility and usability that results from the application of blockchain technology.

We, therefore, discourage trading activity according to speculative events like the potential approval of a Bitcoin ETF and stress the characteristics of Bitcoin that makes it a long-term safe haven asset and technology that just happens to have a price feed.

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2019 Is Seeing More Support for Bitcoin Proof of Keys

1*MM8T7Csh0juk8UAb6ISslg - 2019 Is Seeing More Support for Bitcoin Proof of Keys

On January 3, 2009, the first event on the Bitcoin blockchain happened, known as the genesis block. Now, a decade later, cryptocurrency expert Trace Mayer wants to hold a “proof of keys” celebration.

He advocates for people to remove all their Bitcoins from third-party crypto exchanges and similar services on January 3, 2019.

Mayer argues that by doing this, people can prove that their Bitcoins exist on the blockchain and that their keys are genuinely associated with Bitcoins, and therefore, value. By participating, people can “declare their monetary sovereignty” and hold third-party services accountable.

This event forces third parties to prove they have the crypto funds they claim to store. Plus, the crypto exchanges must show that they have users’ keys.

In a YouTube video made for the January 3 event, Mayer asserts that new people have recently invested in Bitcoin, and it’s important for them — as well as long-time holders of Bitcoin — to periodically show their independence by holding private keys and not being tied to those outside exchanges. Recent hacks have made people doubt the security of exchanges, and in turn, their funds.

Mayer further clarifies that if an exchange does not want a person to hold a private key or have their own network consensus, they’re a “monetary enemy” by not enabling the user to have freedom and independence with their money.

Concerning the network consensus aspect, Mayer discusses how easy it is for third-party exchanges to make decisions without getting consensus first, thereby making decisions on behalf of all people using the exchange even if those individuals don’t agree with the outcome. If people come together and simultaneously withdraw their Bitcoins from exchanges, they’re taking power back.

A Way for Bitcoin Holders to Invest in Themselves

A substantial part of the YouTube clip Mayer created discusses how people are often lax with Bitcoin security because they don’t think about the worst things that could happen.

Mayer then gave examples of how people destroyed computers that had crucial Bitcoin access information stored on them or made other preventable blunders.

Mayer pointed out that through this proof of keys event, people will be encouraged to start discussions about Bitcoin and help others develop better security measures for it.

As such, people are making investments in themselves and getting the option to cease their dependence on third-party exchanges at any time if they choose.

A Lack of Key Ownership Means a Lack of Bitcoin Ownership

A common line of thought in the Bitcoin community, and one expressed in Mayer’s video, is that if people don’t own their keys, they don’t own their Bitcoins. Unless those people hold private keys, it’s actually the exchanges that possess their Bitcoins.

Then, they could deny people access to the funds they own or even shut down altogether and leave people unable to retrieve their investments.

This proof of keys collaborative demonstration could be the annual way that Bitcoin owners test crypto exchanges and make those entities show that they have safely kept the Bitcoins that users own. It also reminds those entities that people can stop doing business with them whenever they wish.

What Could Go Wrong?

Critics have come out against these January 3 plans and brought up some pitfalls that could result. To start, third parties don’t store all funds on exchanges at once.

They keep a substantial portion in cold storage, otherwise known as offline. There could be extraordinary amounts of traffic and long waiting times if everyone were to demand all of their funds at once, including those that aren’t immediately accessible.

Plus, people have said that trading on an exchange may stop until people transfer their Bitcoins back to it. This issue could cause hassles for the people who want to trade and are not part of the group that took their Bitcoins off the exchange.

Will This Be a Large Enough Movement?

There’s also the question of whether enough people will take part in this annual event, the first of which is happening soon. Some discussions on Reddit mention how most informed people who have Bitcoin don’t store it on exchanges long-term.

In that case, people who are still Bitcoin newbies and not well-educated on Bitcoin might still be primarily reliant on exchanges, but will they hear about this plan?

If not, the proof of keys celebration may not cause as much of a stir as its supporters hope it will.

Many Questions, But a Short Wait for Answers

It’s unclear whether January 3, 2019 will be the start of an annual event that makes waves. On a positive note, people don’t have to wait very long to see what comes of the day.

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2019 Is Seeing More Support for Bitcoin Proof of Keys was originally published in Blockonomics Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

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You Can Buy Homes With Bitcoin, But What About Businesses?

1*IMdoFY38aoGWm3WL1x17cg - You Can Buy Homes With Bitcoin, But What About Businesses?

It didn’t take long before people transitioned to buying houses with Bitcoin after they got comfortable with making smaller transactions at businesses that accepted the cryptocurrency.

In many states and countries, doing so is legal — and an enticing way for cryptocurrency holders to invest in homes.

The prospects have increased so much that there are entire sites dedicated to helping people find homes they can buy with cryptocurrency. But, has the same level of interest reached individuals who want to buy businesses with Bitcoin? Here’s a closer look at that topic.

Dubai’s Developers Show Interest in Accepting Cryptocurrency

Dubai quickly emerged as a frontrunner among destinations where property professionals are willing to accept Bitcoin for the respective transactions. The Star Business Centre, which operates and leases furnished offices, is one of them.

But, the majority of Dubai developers embracing cryptocurrency primarily deal in the residential market. Samana Developers even offers people a seven percent discount for paying for residential properties with cryptocurrency.

If commercial developers notice that accepting cryptocurrency for payments doesn’t cause headaches, they may decide to give it a go, too. Evidence shows the demand is there.

Aston Plaza and Residences is part of Dubai Science Park, which includes scientific businesses. The developers announced a batch of 50 luxury apartments payable in Bitcoin that promptly sold out — one investor bought 10.

The team says the fluctuating price of Bitcoin means they won’t release more for people to buy that way, and Bitcoin’s known volatility could be a challenge to overcome. Conversely, other developers might be more adventurous since those first apartments were desirable.

Retailers Who Buy Space in a Slovenian Shopping Mall Must Accept Cryptocurrency

A Slovenian shopping mall is the world’s first “Bitcoin city,” and all merchants must accept cryptocurrencies for transactions. In addition to more than 500 stores, the complex also has hotels and a water park. There is even an area devoted to cryptocurrency mining.

Information about spaces for lease within the commercial building doesn’t indicate whether people must buy the properties with Bitcoin.

However, once merchants get established, they conduct transactions on a dedicated cryptocurrency platform called Elipay.

Since the entities leasing real estate in the building are already familiar with the process, perhaps they could pay rent with cryptocurrency, too. That, for many, is the next best thing to buying commercial real estate with cryptocurrency.

A Maltese Palazzo Owner Will Only Accept Bitcoin

When commercial enterprises decide to make Bitcoin an acceptable payment method, they often do so to provide a variety of payment options for convenience.

However, the owner of a palazzo in Malta that’s more than 400 years old will reportedly only sell the property to someone who’s willing to pay for it with Bitcoin. The $3 million estate is suitable for various uses and has commercial permits.

Although it’s too early to know how the eventual new owner will use the building, a person may get to launch a business by purchasing this building with Bitcoin. When selling a business, it’s crucial to know what buyers want. Here, the owner is specifically appealing to people who want to buy with Bitcoin.

That could pay off since Malta is very eager to explore the possibilities Bitcoin provides. However, deciding to accept Bitcoin and nothing else also drastically reduces the size of the potential market.

A Bitcoin Gambling Site Sold for Bitcoin

Sometimes, people don’t start their businesses from scratch but acquire and run them under new strategies. Back in 2013, that opportunity existed for someone interested in buying SatoshiDice, a popular cryptocurrency gambling site.

Erik Voorhees, the man behind the online destination, made headlines for being the first cryptocurrency entrepreneur to sell a crypto company that was eventually worth a $1 billion acquisition based on crypto market trends.

SatoshiDice also stood out by allowing people to invest in the site and contribute much smaller amounts than other investing options required.

As such, if people aren’t at the point where they can buy commercial real estate with Bitcoin, financially supporting a cryptocurrency company could help them get similar satisfaction.

But, there are risks involved since not every company has such a success story as SatoshiDice.

First Japanese Commercial Building Sells for Bitcoin in Early 2018

Japanese developers from a company called Yitanzi gave the nod of approval to Bitcoin when they sold the first commercial building in the country for 547 BTC, or nearly $6 million. The development team also indicated they would accept other cryptocurrencies later but didn’t give specifics.

Analysts pointed out that this event proved Bitcoin is suitable for large real estate transactions. But, they also believed it’d be a while before such property deals have a chance of becoming more mainstream.

Many Providers of Flexible Workspaces Take Cryptocurrency as Payment

Coworking spaces and other versatile setups are often the home bases for freelancers and other people who want the experience of working around others but don’t need to invest in traditional offices, whether that’s due to financial constraints, limited staffing requirements or both.

Fortunately for cryptocurrency enthusiasts, many such spaces around the world allow paying for usage time in cryptocurrency.

Paper Hub is one option in the Czech Republic that only allows paying for membership in Bitcoin or Litecoin. The facility is cryptocurrency-centered and has a crypto think tank, crypto lab and even a coffee shop where people buy their drinks with cryptocurrencies.

It’s another choice for people who are ready to use Bitcoin for commercial purposes and do something beyond accepting it as a form of payment when selling things. Being a member at Paper Hub allows people to be around like-minded individuals and provide direct support to an innovative crypto-based project.

Widespread Opportunities Not Available Yet

The changes to invest in commercial real estate are not as plentiful as they are in the housing market, but that could change.

The information above shows that developers around the world are at least testing the waters.

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stat?event=post - You Can Buy Homes With Bitcoin, But What About Businesses?


You Can Buy Homes With Bitcoin, But What About Businesses? was originally published in Blockonomics Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

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