Nowadays, many media have discussed bitcoin ETFs in detail, but it is surprising that few people really have a deep understanding of these ETFs, and the details of many topics are hidden behind the exaggerated jargon and Einstein level financial Mandarin that are often difficult to understand.

So, what is bitcoin ETF? Why are they so popular? Although those vested interests are trying to get these ETFs approved, why does the securities and Exchange Commission (SEC) not buy the concept of bitcoin ETF?

Let’s pause. First, let’s briefly introduce ETF. ETF is the abbreviation of Exchange Traded Fund (ETF). It is an investment fund composed of a variety of tradable assets or asset portfolios. Its only purpose is to enable investors to realize investment diversification without directly owning all these assets.

In layman’s words, if I want to get involved in every piece of cake, this is what I do as an investor, rather than putting my money into a company or stock and owning it wholeheartedly. In this way, the risk is relatively low and the profit potential is greater. ETF tracks the performance of its assets, then adjusts its portfolio and conducts business accordingly: don’t put all your money into it, but choose the best at the best time, and abandon him when you no longer need a star player.

To some, this sounds like a good old guess. More importantly, if you have studied the prelude to the 2008 financial crisis, met big bears (2015) and happened to know what is secured debt obligations (CDOs), which has laid a solid foundation for understanding the ETF world.

Although some people don’t like to compare this CDO with ETF, others, including Michael bury (played by Christian Bale in the above film), claim that there are disturbing similarities between the two, which may have similar disastrous consequences.

By the way, for those who are not familiar with the name, berry is a former hedge fund manager. He overcame all difficulties and accurately predicted the subprime mortgage crisis and the collapse of the U.S. real estate market, which quickly turned into a global financial disaster.

So, yes, his qualifications are complete.

So what’s wrong with ETF? To be frank, like CDOs, ETFs are basically junk most of the time, bury believes.

At that time, CDOs were composed of subprime mortgages that could never be repaid, but we were still combined with other similar loans to form a portfolio marked with “high quality” and sold to investors who wanted to diversify their investments and double their profits.

Similarly, today’s ETFs usually consist of the same common assets, but when they are combined, they will suddenly become high-value portfolios. In other words, we are talking about derivative products: not the face value of the product, but the derivative value. It is the result of repackaging. Moreover, due to the lack of better terms, it is the result of rebranding, just like the shiny new package on the package and the old sugar in it has turned sour.

As John boly told Bloomberg earlier this fall, ETF lacks an accurate pricing mechanism, and it is vital that “no real level of safety analysis is necessary for price discovery”, which of course will lead to bubble economy. Therefore, there is a major liquidity problem because these ETFs are indexed at a price, and their components can neither reflect nor reach these prices.

Although the transaction value of these ETFs in the world is as high as trillions of dollars, their core intrinsic value is often only millions of dollars, or even billions of dollars. In other words, ETFs and the funds allocated to ETFs cannot be supported by the assets themselves, because when everything is said and done, when these products are sold in the form of non ETFs and non derivatives, they can never fill the fuel tank.

Moreover, it is undeniable that the longer the film is shown, the worse the situation will be due to the snowball effect. Of course, this is the worst case. Perhaps, not all ETFs necessarily or always bring trouble. Of course, the SEC does not think that many mainstream financial ETFs are particularly dangerous, although regulators should be aware of any possible risks; In fact, most of these ETFs are now considered normal trading.

In addition, in addition to more traditional ETFs, there are many types of ETFs in the field of alternative finance. This is why people should not confuse bitcoin with blockchain ETF: the former is related to cryptocurrency (or more specifically, bitcoin and its clone currency), while the latter is related to blockchain technology and DLT. They are usually not bound to bitcoin in any way.

As Chris Tian Magoon, CEO of amplify (said to be one of the most successful blockchain ETFs), said recently, “bitcoin needs a blockchain, but the blockchain does not need bitcoin”. But what about bitcoin ETF? What’s the matter with them? On the bright side, due to the nature of all ETFs, they will allow investors to use it without owning any bitcoin. In addition, like all ETFs, they will allow investors to short bitcoin assets when necessary, that is, speculate when bitcoin prices fall rapidly and profits are lucrative.

Last but not least, they will allow investors to trade these assets in a way acceptable to most mainstream brokers and traders. These people are familiar with ETF as a financial instrument, but do not necessarily regard cryptocurrency as a relatively new phenomenon.

In any case, although bitcoin ETF has these advantages for eager capitalists, it has basically attracted all the criticism of traditional peers, as well as all the confusion, financial fraud and suspicious reputation related to the still suspicious cryptocurrency world.

This may be why the securities and Exchange Commission believes that there is no problem with typical ETFs. By a simple analogy, for federal regulators, ETFs are like a private buffet, composed of a variety of items on the menu, and their sources are easy to trace. In contrast, bitcoin ETF is more obscure and difficult to understand. In the view of the SEC, it may be the same, except that this private (or even secret) buffet (and so on) contains extremely strange items on the menu, thinking that their origin is often untraceable, and their manufacturers always lack the documents needed to support their products (i.e. “nutritional information”), Its key figures are sometimes even fugitives.

Of course, any regulatory body will carefully issue approval seals to such people, and then have to bear the consequences and be responsible for any resulting disaster.

Predictably, in this year alone, the SEC has rejected the proposal to create a bitcoin based ETF several times, one of the reasons is that the agency has concerns about manipulation. Some cryptocurrency veterans, including those who operate cryptographic exchanges such as Ras vasilisin, are consistent with the SEC’s speculation and claim that bitcoin ETF keeps pace with begging dogs: how the system was established is inherently flawed and fraudulent, and it is impossible to lead to long-term prosperity; However, it can and will lead to huge deficits, volatile crises and inevitable court hearings.

It is said that this is for the same reason: the indexed value of these funds will not accurately reflect the value of the individual assets contained therein. However, it is understandable that others will also gain a lot in bitcoin ETF. Among them are the famous Winklevoss twins. They first appeared in the spotlight because the lawsuit against Facebook and Mark Zuckerberg in 2008 attracted extensive attention, which was tested in detail in another well-known film the social network. After the twins received a $65 million settlement from Zuckerberg, their lives were closely linked to the life of winning the lottery, bitcoin.

Facts have proved that this is especially true during the bubble in 2017. At that time, they invested heavily in the first cryptocurrency, and later opened their own cryptoexchange Gemini, with a shameless name.

Recently, most of Winklevoss’s efforts have focused on the next step: getting bitcoin ETFs approved by the U.S. Securities and Exchange Commission (SEC) in order to turn their total net worth of $1.5 billion into a more impressive figure. Bitwise, a venture capital fund, launched bitcoin ETF for the same reason: they want to increase profits and claim that their proposal is reliable and unchanged; More importantly, it is said that the global market is ready for them.

CBOE global market (CBOE), which promotes bitcoin futures, also wants to see the same novelty. At the same time, cryptocurrency insiders such as weisberger stipulate that the SEC’s judgment is blinded by their bias towards the asset itself and the lack of jurisdiction over bitcoin: in fact, the risk of bitcoin ETF is not higher than that of precious metal ETF. If the precious metal has the same or worse risk, it is found that the price is insufficient and there may be price manipulation.

It is true that most people who support bitcoin ETF, or those who are actively active and looking forward to approval, have great personal interest in seeing these new transactions stand firm. So far, the SEC has remained skeptical and refused to take the bait. Will bitcoin ETF eventually be approved? Maybe. But how long, what will happen between now and then, and what we will see after approval is unclear?

No one knows for sure. But one thing is clear: it will not be plain sailing. Although the benefits of blockchain technology and cryptocurrency are obvious, it remains to be seen whether we should use them for our own use or abuse them like mainstream finance.

Responsible editor; zl

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