In the latter half of 2018, few developments have occupied crypto investors’ headspaces like the industry’s indefatigable pursuit of a bitcoin exchange traded fund (ETF).
This conversation lay largely dormant since the two brothers’ first attempt was rejected by the U.S. securities regulator in March of 2017. But the Winklevosses reignited the conversation when their second attempt at an ETF was shot down by the U.S. Securities and Exchange Commission (SEC) in July of this year.
With the buzz back, the prospect (or failing prospects) of a bitcoin ETF have crowded the headlines of mainstream and crypto media alike. Following the Winklevosses’ failure to secure the coveted first-in-the-industry fund, the ensuing months would see a flurry of decision delays for existing applications, more rejections and revisions of said rejections.
The sheer volume of news surrounding ETFs — and the general complexity of the asset when compared to the simplicity of trading on the bitcoin spot market — makes the industry’s pursuit of one a rich and even abstruse topic.
So let’s see if we can set the record straight.
What an ETF Is and What It Means for Bitcoin
To start, a short explanation: an ETF is a fund that holds an underlying asset or assets, be they stocks, commodities, bonds, etc., which are then divided into shares for investors to buy. In structure, an ETF functions like a hedge fund, the primary difference being that an ETF is traded on a public market like shares of a stock, while a hedge fund is not.
With that primer in mind, we can now unpack the processes and jargon that constitute an ETF’s many working parts.
Typically, an ETF features four primary stakeholders:
a sponsor (the entity who creates the ETF)
a custodian (the entity who stores and manages the underlying asset/s)
authorized participants (financial institutions or accredited individuals who create
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