Sunny Fang

@SideUpFang

Coin ETFs are Coming.

November 15th 2018

An advice passed on from the inhabitants of Wall Street’s pantheon: invest in (American) index funds. But why?

These funds are popularly recognized as safer means to invest without having much knowledge of investments because they give you the ability to invest in every company in an index. One buy and you can put your money behind every company on a major index rather than betting on the success of one company or even a few companies. One company in an index may fail, maybe even a 100 companies in a index may fail, but any well-established index fund does very well because it holds shares of many hundreds or even thousands of companies.

Given the US stock market, over time, keeps going up at an average of 10% per year, that’s a bit better than the 0.00001% my bank offers. Index funds provide a quick and easy means to rise with the US stock market.

A US stock market index tracks companies, but here’s the catch: you cannot put money in an index because it’s just a number tracking the performance of a lot of companies. The money has to be put in a fund that buys shares in the same companies the index tracks. This way, the index and the fund move in parallel; therefore, such funds are called index funds.

Index funds are also easy to buy. They are listed on major exchanges and this allows them to become exchange-traded funds. Because of this, anyone can easily buy an ETF. Most popular trading apps have access to all the top exchanges and this means they have access to all the funds traded on those exchanges. People can buy most ETFs with little to no hassle and instantly get access to the performance of any major index.

What if Coins could have such ETFs?

There are a lot of differences in the coin market and the stock market. Differences like volatility are obvious but there are many other factors that keep the coin market far behind the tradition stock market.

When buying coins, people have to signup to a dozen different exchanges to access different coins and tokens, but most online stock brokers offer access to most stock in 1 app. It is nearly impossible to access sound advice on coins, but it’s easy to get accurate financial advice for stocks. There’s many, many differences but a new project wants to address one of them.

Iconiq Fund is bringing ETFs to the cryptocurrency market.

There are many types of exchange traded funds. Any fund that trades on an exchange qualifies to be tiered as an ETF. Funds can trade on an exchange even if they hold just a single commodity or asset; they can trade on an exchange if they hold foreign stocks. There aren’t any limits on what an ETF’s underlying asset may be, just the quality exchanges only authorize legitimate listings of ETFs.

The legitimacy part has been the challenge in getting an coin ETF. The most well-known pursuit of a coin-based ETF is happening right now in the US as many financial institutions want to get their hands on some quick crypto cash by having the first bitcoin ETF. Proving the legitimacy and need of such a new form of ETF is causing a delay.

The Deal with ETFs

There’s so much hope rallied behind a bitcoin ETF getting approved by the SEC but there hasn’t been much progress as the decision keeps getting delayed. Not to mention, a bitcoin ETF misses on the best part of ETFs, and that’s their ability to give common people easy access to diversified investments.

The most popular ETFs are index funds, but a bitcoin ETF isn’t an index fund.

A bitcoin ETF may bring in some fresh interest in the coin market but it will be primarily pruned towards the big B. There are many other coins floating about and if the market is going to have individualized ETFs for each coin, it could be takes ages before the benefits of ETFs can be exposed to coins at scale.

To address this, Iconiq Fund is going to work with a Maltese Private Investment Fund to make index funds that will follow an index created by BITA. This way, Iconiq Fund will be able to give enterprise-grade ETFs that are similar to the index funds available for stocks. While a bitcoin ETF on NASDAQ may get more liquidity simply because of how much reach NASDAQ has, a cryptocurrency index fund is something that can fill up on many of the differences that separate cryptocurrency market from the stock market.

This will introduce a mature investment option, that used to be available mostly for stocks, to also be available for coins. Beyond giving people an easy way to follow an enterprise-grade index, it can improve access to coins.

Why is there Hype behind ETFs?

This is definitely not the first article you’ve read that corners on the value an ETF can have for the coin market. While most of the focus is on bitcoin ETFs, an opportunity to have index funds for the greater coin market means a number of important things.

The market needs liquidity, growth in adoption, and convenient means to provide access to more than just bitcoin. An index fund that covers a basket of coins does all that. This is not going to spur a new bull run but it gives an important boost in the quality of investment means possible in the coin market.

Interestingly, there’s a good chance that Iconiq Fund’s ETF could gain popularity that would otherwise be expected mainly from established stock exchanges. Iconiq Fund is a new part of Iconiq, which has been providing support to many blockchain-based startups. They have the experience and historical trends are positively in their favor. Considering that BitMex brings in a greater volume than CBOE by a large margin, an index fund and ETFs launched by a company already operating in the space might fare quite well.

How Come NY is left Behind?

The US has shown an overall slow pace with respect to the handling of the Crypto market. While some European countries are on the verge of laying out proper frameworks for the future of security tokens and the blockchain economy, US lawmakers are still figuring how to squeeze more tax dollars out of the blockchain. The focus isn’t on creating an environment where this great technology can proliferate, but more on how to get current tax money from those who profited from this market’s growth.

Meanwhile, Iconiq Fund is based in Germany, a country that has been relatively accommodating of the blockchain economy. Moreover, other European countries have laid out proper laws for the approval of investment products based on the blockchain. Thus, Iconiq Fund has been able to remain on the path of providing legally compliant services and the ETFs will be launched upon approval of regulatory bodies.

While the US dominates the ETF market when it comes to stocks, it may lose the battle in harnessing ETFs for the wider blockchain economy. In fact, if US lawmakers fail to provide proper, paced, and clear laws on the development of blockchain developments and investments soon, other countries may edge out farther enough that the gap may not be easy to fill. For the time being, companies like Iconiq are taking advantage of European countries’ supportive stance on the blockchain economy. Enterprise-grade coin ETFs are on the way, but they aren’t coming from Wall Street.

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