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Bitcoin Exchange-Traded Products: Will the SEC Approve a Bitcoin ETF This Year?

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The prospect of a Bitcoin ETF has been widely discussed for the last few years, and despite all previous applications for a US-based fund being rejected or withdrawn, the latest rhetoric from the SEC appears to suggest the commission is ready to consult with industry stakeholders, who may be able to address their concerns such that a viable Bitcoin ETF can finally come to fruition in 2018.

The final quarter of 2017 saw the introduction of regulated Bitcoin futures products, via both the CME Group and Cboe Global Markets in the US, representing an increasing normalisation of Bitcoin as an asset within the framework of traditional finance, and an important new vector for fund providers to use in crafting a Bitcoin ETF. The Bitcoin futures contracts have now been trading for a number of months, and their early successes may have encouraged the latest dialogue from the SEC and the release of a document last month in which they have extended the consultation period of formal proceedings for a rule change to allow the NYSE to list Proshares Bitcoin ETFs. This appears to be in direct contrast to a staff letter penned by Director of the Division of Investment Management Dalia Blass at the SEC in January, which seemed to downplay the chances of an ETF being approved in 2018, citing “a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors”.

The formal consultation process which was initially started at the end of 2017, is essentially a request for industry stakeholders to provide comments to address the handful of points of contention over Bitcoin ETFs, specifically regarding fair valuation, sufficient liquidity, effective pricing arbitrage and asset custody. These are reasonable considerations that have ultimately been the root cause of the stream of rejected and withdrawn Bitcoin ETP applications over the years. The document in March has been followed by further dialogue across April relating to similar ETF applications requiring rule changes, including a document released on April 23rd to extend the consultation period for similar proceedings related to both long and short leveraged Direxion Bitcoin ETFs.

Bitcoin is an asset which is unlike the vast majority of those the financial system is accustomed to engaging with, and has been treated with a tentative approach within traditional finance and banking circles. However, a response letter from Cboe president Chris Concannon, covers many of the concerns related to a Bitcoin ETF and points towards the growing maturity of the Bitcoin marketplace to suggest that the SEC take a “holistic approach”, similar to how it has historically engaged with commodity-related ETPs.

The Cboe letter acknowledges the additional considerations required for Bitcoin and cryptocurrencies but encourages an approach which doesn’t unnecessarily impede innovation.  The document also points towards the growing maturity of the market, with the impressive “high-water marks” of December 2017, such as more than $5 billion in notional value of bitcoin transactions in a single day.

Applications for the Proshares Bitcoin ETF and Proshares Short Bitcoin ETF were originally filed in September 2017, but promptly withdrawn. Despite this, the latest document from the SEC appears to suggest that these proposals are now back on the table. The proposed Proshares ETFs and those presented by Direxion, would offer both long and short funds with exposure to Bitcoin returns using the cash-settled bitcoin futures contracts that are now available. This introduces potential liquidity problems due to the fact that the regulated futures contracts are yet to attract significant trading volumes. However, as stated in the CBOE letter:

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Binance Blocking 13 States From New US-Based Crypto Exchange

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Binance says 13 states will be blocked from its new crypto exchange Binance.US.

The exchange, which is set to accept initial registrations on Wednesday, will prohibit customers in the following states as it works to ensure its platform is compliant across the US.

Blocked states

  • Alabama
  • Alaska
  • Connecticut
  • Florida
  • Georgia
  • Hawaii
  • Idaho
  • Louisiana
  • New York
  • North Carolina
  • Texas
  • Vermont
  • Washington

Binance.US CEO Catherine Cooley says the exchange will keep pressing to ensure the platform is available to all US citizens.

“Although it is upsetting that we cannot offer Binance.US in the states where I grew up and earned my education at this time, please rest assured that this is just the beginning, and it is our mission to bring access to those of you in these states many of us call home…

U.S. customers will be able to buy listed coins with USD through ACH or wire transfer methods. We will be exploring other options based on the demand of our users.”

The platform will debut with six supported cryptocurrencies including Bitcoin, Ethereum, XRP, Bitcoin Cash, Litecoin, and Tether.

Users who have coins that are not available for trading on the platform can still store the assets on Binance.US.

“All coins/tokens not yet listed on Binance.US can still be stored with other custodians in the custody method of your choice (ex. hot wallet, cold storage, etc.) and traded on other venues that have live order books in those pairs. Over the coming weeks, we will be adding coins that satisfy our Digital Asset Risk Assessment Framework.”

According to Cooley, the platform plans to steadily add more coins after its initial launch.

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Bitcoin, HTC collaborate on cryptocurrency smartphone

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Bitcoin.com is going mobile.

The cryptocurrency inventor has announced that it is working with telecommunications manufacturer HTC on developing crypto technologies, starting with its smartphones.

In a press release, Bitcoin.com said it is beginning a long-term partnership with HTC, which has developed a smartphone with a pre-loaded Bitcoin Cash (BCH) support app.

People who buy an EXODUS 1 from HTC won’t have to download a BCH wallet app onto their phones. For people who already have an EXODUS 1, they just have to update the software on their phone, the release said.

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“The EXODUS vision has always aligned itself towards public blockchains and its fundamental transformative nature of the future of money and the Internet,” Phil Chen, Decentralized Chief Officer at HTC said in a statement.

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“The Zion Vault is happy to support BCHnatively in hardware for security to go hand in hand with the BCH blockchain as an alternative to dominant payment rails and platforms,” Chen added.

However, the automatically downloaded Bitcoin app isn’t the only way the two companies are partnering.

They also plan to offer special discounts for buying phones using Bitcoin Cash as well as selling EXODUS phones on Bitcoin’s store.

“There are so many synergies between Bitcoin.com and HTC. We are very excited to be on this incredible journey together,” Bitcoin.com’s CEO Stefan Rust said in the release.

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Ethereum Uppercuts Bitcoin

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Ethereum has been an outperformer this week in the crypto space, after breaking out of a bullish wedge. Week to date, Ethereum (ETH) has rallied over 17 whilst a tailgating Ripple (XRP) is hot on its heels, both of which have left Bitcoin (BTC) for dust which traders -0.3% lower. Yesterday it was announced that Aztec, a company focussed on privacy-centric tools, has begun a 30-day ignition ceremony to roll out its workaround for “private transactions” on ETH, which appears to have helped it break above 203.95 resistance.

We can see on the daily chart that ETH produced a slight bullish divergence with RSI whilst its bullish wedge took shape. After a lacklustre breakout, it appeared the pattern was on the brink of failure, yet prices held above the 164.12 low before building up bullish momentum ahead of the trend’s acceleration. RSI has not reached overbought territory on the daily chart. And besides, a momentum high does not always mean a price high (as we need to allow for a divergence to form).

With the bullish wedge now in play, bulls could target the $240 high at the base of the wedge.

  • A break above 217.33 assumes a run for the 240 high, although traders could look to buy dips above 203.95 support.
  • RSI is currently overbought and a bearish pinbar has appeared to warn of near-term exhaustion. However, given the strength of daily RSI, prices might consolidate or provide a relatively shallow retracement before breaking higher.
  • Ultimately, the four-hour trend remains bullish above 188.83, so bulls could look for a higher low to materialise before considering buying any dips.

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