The entire cryptocurrency/blockchain community, as well as much of Wall Street, has been anxiously awaiting the U.S. Securities and Exchange Commission (SEC) decision regarding the Winklevoss twins‘ proposed bitcoin exchange traded fund (ETF), which would trade under the ticker symbol COIN. The final deadline has come down to 13 March, so we will soon know the answer. More accurately, Monday’s deadline is for decision on a proposed rule change that would effectively pave the way for allowing this and other bitcoin ETFs.
Clearly, approval would mean the influx of big Wall Street money, as well as an opportunity for the average Main Street investor to invest in bitcoin as easily as buying stock in a company. Many pundits have suggested this could lead to an immediate doubling or tripling of the current bitcoin exchange rate, or possibly create a massive bubble. It’s apparent to me that some of this exuberance has been priced into the recent bitcoin price run up. The obvious implication is that a denial from the SEC would likely result in a significant price drop.
So which way will the SEC go? There have been lots of predictions. In fact, there is an active prediction market on this very question. As I write this, the market is predicting a 49.77% chance of approval–basically a coin flip. And we’ve seen a fair bit of price volatility as traders try to position themselves for either outcome.
One thing is for sure–no one has been able to point to any major flaw in the Winklevoss proposal, or obvious reason why the SEC should deny the application. Sure, there have been some nonsensical, emotional outcries about how approval will lead to investors losing money, or would somehow give tacit approval to the use of digital currencies for nefarious purposes. (News flash–investors can always lose money, long or short, on any investment, and the most popular currency on the planet for use in illegal activities is the good ol’ $100 U.S. Federal Reserve Note.)
It’s a close call, but in the end, I come down slightly on the pessimistic side. No bureaucrat has ever gotten a career boost for taking a risk and getting something right. But most bureaucrats live in fear of making a mistake and being severely punished for it. So the safe thing to do, whenever something new and innovative (and yes, potentially risky) comes along, is simply to say no. Bureaucrats don’t normally get fired for saying no. So in the end, I expect the SEC will make up some lame excuse to deny the ETF application in the name of protecting the average Main Street investor.
Given that admittedly negative view, I should be selling my bitcoin now, right? Well, I’m not. I try not to make short-term investment timing decisions based on news like this. I’m just continuing with my dollar cost averaging strategy of converting more dollars into bitcoin on a regular basis. So if the SEC gets out the big red “DENIED” stamp, as I predict, I’ll probably be buying more bitcoin at a lower price soon. If I’m wrong (and I certainly hope I am), I’ll certainly enjoy the roller coaster as it continues to climb toward the moon.