Why the Winklevoss Bitcoin ETF Suddenly Is Looking Better to the SEC

The odds that the Winklevoss Bitcoin ETF will get approved have jumped in recent weeks, thanks to several new forms of Bitcoin trading that address the SEC's biggest concerns.

Winklevoss Bitcoin ETF

It was only this past March that the U.S. Securities and Exchange Commission rejected a proposal from Cameron and Tyler Winklevoss to launch a Bitcoin-based exchange-traded fund (ETF), the Winklevoss Bitcoin Trust (BATS: COIN).

But a few weeks after the SEC's rejection of the Winklevoss ETF, the BATS BZX Exchange filed an appeal - which the SEC agreed to review. That review is pending, so the Winklevoss proposal is anything but dead.

The main objection the SEC had was that Bitcoin trades on mostly unregulated exchanges throughout the world - the Winklevoss twins' own, fully compliant Gemini Exchange being one of the few exceptions.

Given that objection, it appeared Bitcoin investors would have to wait years for any Bitcoin ETF - until more of the world's Bitcoin exchanges were regulated.

But now it looks like we could see either the Winklevoss Bitcoin ETF or another proposal approved by early next year, or even before the end of 2017.

Here's why the SEC is about to change its mind on the Winklevoss Bitcoin ETF...

Why the Winklevoss Bitcoin ETF Is Back in Play

In late July, LedgerX, a cryptocurrency trading platform, was granted permission from the U.S. Commodity Futures Trading Commission (CFTC) to act as a clearing house for cryptocurrency-based derivatives contracts.

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The creation of Bitcoin-based derivatives trading - we're talking about options and futures here - will have a major impact on all Bitcoin trading. It will make markets more efficient and lead to more reliable Bitcoin price discovery.

Bitcoin price

Less than two weeks later, the Chicago Board Options Exchange (Nasdaq: CBOE) and the Gemini Trust Co. - the company founded by the Winklevoss twins - announced an agreement in which the CBOE will use Gemini's market data to create Bitcoin-based derivatives.

The companies said they expected Bitcoin derivatives to start trading as early as the fourth quarter of 2017, pending regulatory approval by the CFTC.

Both provide the kind of thriving derivatives market the SEC felt Bitcoin lacked when it rejected the Winklevoss ETF in March.

And it's probably why VanEck, a major player in the ETF world, suddenly decided to jump on the Bitcoin bandwagon.

On Aug. 11, the company filed a proposal with the SEC for an exchange-traded fund called the VanEck Vectors Bitcoin Strategy ETF. The VanEck Bitcoin ETF would be backed by the new Bitcoin derivatives.

That differs from the Winklevoss Bitcoin ETF proposal, which plans to buy and hold Bitcoin in proportion to the money invested in the fund. The Winklevoss ETF is modeled after the SPDR Gold Trust ETF (NYSE Arca: GLD).

Both of these - plus the SolidX Bitcoin Trust (NYSE Arca: XBTC) proposal, the quest by the Bitcoin Investment Trust (OTCMKTS: GBTC) to evolve into a Bitcoin ETF, and another Bitcoin derivatives-based ETF proposal from REX ETFs, the REX Bitcoin Strategy Fund - now have an excellent chance of winning SEC approval.

Related: What's the Best Cryptocurrency to Invest in Today?

"Things have changed. My odds of Bitcoin ETF approval within 18 months are WAY up," Spencer Bogart, head of research for Blockchain Capital, tweeted on Aug. 2.

In February, ahead of the SEC's rejection of the Winklevoss ETF, Bogart put the odds of a Bitcoin ETF approval at less than 25%. Now he believes the odds are higher than 75%.

And if one gets approved, it's more than likely several others will follow in quick succession. That's what happened when the first gold ETFs debuted back in 2003-2005.

The impact of this on Bitcoin investing can't be overstated...

What a Wave of Bitcoin ETFs Will Do to Bitcoin Prices

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SEC approval of any Bitcoin ETF, much less several, is a big deal because it would make it possible for investors to buy the cryptocurrency without going through the technical hassles of setting up accounts at Bitcoin exchanges and managing wallets.

That would open up Bitcoin to many more investors. Plus, the Bitcoin derivatives markets themselves will draw fresh money into Bitcoin trading.

"A U.S. federally regulated venue for derivative contracts settling in digital currencies opens the market to a much larger customer base," Paul Chou, CEO of LedgerX, told ETF.com. "We are seeing strong demand from institutions that previously could not participate in the Bitcoin market due to compliance restrictions against unregulated venues."

This massive surge in demand will send the Bitcoin price soaring.

The price of gold doubled within two years after the first gold ETFs appeared in 2003 and 2004. Within four years, gold prices had tripled.

The price of Bitcoin figures to get just as much of a boost, but in less time. The Bitcoin price already has been doubling on average every eight months since 2011.

All the new money will be chasing roughly the same number of bitcoins. The supply is controlled by the software and is set to continue declining over time. It cannot rise in response to demand.

So the market will force the price of Bitcoin higher. It has to.

Anticipation of these developments is one reason why Bitcoin price predictions range from $20,000 in five years to $100,000 in 10 years. Bitcoin currently trades at about $4,500, just below its all-time high of $4,522.13.

"We could easily see a 50% correction, but the way I see the sentiment changing, and knowing we have a derivatives market coming online, I would not bet on a drop," Blockchain's Bogart told ETF.com.

His near-term Bitcoin price target is $5,000 to $10,000. Bitcoin at $9,000 is double the current price - not bad for an asset that's already up 350% for the year.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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