Bitcoin ETF Approved Te March 2017: A Black Swan With Asymmetric Risk

Bitcoin ETF Approved In March 2018: A Black Swan With Asymmetric Risk

Bitcoin ETF Approved Ter March 2018: A Black Swan With Asymmetric Risk/Prize

Feb. 9, 2018 Four:46 PM coin

Our thesis is that the probability of a Bitcoin ETF approved ter the near term has bot misevaluated spil a “very low chance” event by major investment and research firms.

Spil such, there is an attractive comeback/risk ratio for investors taking positions te the OTC market before March 2018.

Wij provide a target price of $Three,678 for Bitcoin te case an ETF is approved te 2018 and a target price of $551 te case it is rejected this year.

Wij assign a probability of 35% for approval against 65% probability for rejection, making our final weighted promedio expected price $1645.45 or a +67.8% expected comeback above the current price.

Te this analysis, wij will concentrate on the facts surrounding an upcoming trascendente event: the final decision on the Winklevoss Bitcoin ETF (COIN) approval by the Securities Exchange Commission on March 11th, 2018 and the appeal of opening long positions before this date.

Te its 8 years of existence, Bitcoin has polarized analysts, investors, and scholars. Overeenstemming on Bitcoin’s merit has not bot reached, and observers usually engage te two opposed extremes of opinions that either deplore it or aggrandize it. Albeit its utility spil a means of exchange is controversial, from a purely quantitative point of view the evidence suggests continued growth te transaction volume through the Bitcoin network, continued growth te rente from fresh markets, and continued growth te entrepreneurial attention. Wij describe the current state of the Bitcoin economy, the upcoming ETF approval chances, and the potential implications for investors.

Stable growth te transactions processed by the Bitcoin network

Transactions processed by the payment network have bot growing at a stable tempo for the past Five years. This wasgoed the diferente use case of Bitcoin and the gegevens indicates that it is fulfilling its aim at a current rate of

250,000 transactions vanaf day.

Daily confirmed transactions on Bitcoin’s blockchain – Source: Blockchain.informatie

Bitcoin price near all-time high

Albeit the diferente intention of Bitcoin wasgoed to become a digital currency payment network, very likely the most successful use of Bitcoin today is spil a speculative voertuig. At $981 vanaf unit and a total market capitalization of $16 billion, the cryptocurrency is powerfully traded back and forward for CNY, USD, EUR, among other 26 national currencies. Just te the 30 day period of 12/24/16 to 1/22/17 the aggregate of Bitcoin exchanges have reported a combined trading volume of 154,713,805.60 BTC, or approximately $141.6 billion at today’s price, an promedio of $Four,719 million vanaf day of trading (source: Since end of January Bitcoin trading volume has declined substantially te China due to fresh exchange fees after pressure from the Chinese central handelsbank, however the price of Bitcoin shows robustness and keeps approaching the all time high of 2013.

Bitcoin price chart ter loom scale, voiced ter USD – Source:

Exponential growth of internet searches related to Bitcoin te high inflation countries: the case of Nigeria, Ghana & Venezuela

The appeal of Bitcoin spil a zuigeling of “digital gold” that has no borders and can be concealed lightly seems to be an attractive angle for developing economies that suffer very inflationary regimes. Based on gegevens provided by Google, internet search volume for the keyword “bitcoin” has bot growing geometrically ter Venezuela, Nigeria, and Ghana during the last year, being on the list of the top Five countries te the world with most rente on the subject. Te Nigeria, the buying pressure to acquire the cryptocurrency made the price soar ter the particular markets to the omschrijving of USD 1,730 on Jan 4th, the highest price everzwijn recorded ter Bitcoin’s history (source:

Nigeria: 15.38% CPI inflation rate (2018)

Google search volume ter Nigeria 1/29/2012 to 1/22/2018, keyword “bitcoin” – Source: Google Trends

Ghana: 17.02% CPI inflation rate (2018)

Google search volume ter Ghana 1/29/2012 to 1/22/2018, keyword “bitcoin” – Source: Google Trends

Venezuela: 475.61% CPI inflation rate (2018)

Google search volume ter Venezuela 1/29/2012 to 1/22/2018, keyword “bitcoin” – Source: Google Trends


Our main argument ter distinciĆ³n of taking positions te Bitcoin is sustained on five lumps of evidence that voorkant regulation, insider skill, market coerces, competitive deeds, and political considerations. Wij believe this evidence has not bot described ter the past by mainstream investment and research firms while analyzing it now provides an edge to take profitable positions.

Weakened terms by SEC te the approval process of the very first Bitcoin ETF – Inaction by SEC ter March ’17 will approve de-facto the ETF

The rule-change application of COIN wasgoed submitted on July 2nd 2018, after almost three years of prep with previous SEC filings. The SEC has consecutively requested three extensions to make a decision: the very first one wasgoed ter September ’16, another ter November ’16, and the last one ter January ’17. Based on the timelines described te the SEC response, the last date for approval or disapproval of the rule-change is March 11th 2018, date after which the ETF would be approved by default if the SEC does not communicate a decision.

Applicant of the very first Bitcoin ETF taking steps that indicate positive SEC consideration

The Winklevoss brothers are behind the COIN ETF application. Wij identify several steps they have publicly taken that might indicate progress te conversations with SEC or at least their aligned involvement spil promoters:

  1. On Feb 19th, 2014 the Winklevoss brothers created Winkdex, an index to track Bitcoin prices that is now divulged by major financial information vendors spil Bloomberg and Reuters. This could be a pre-requisite for information transparency.
  2. Since Jan 23rd, 2018 they are now operating a Bitcoin spot exchange ( based ter Fresh York that is fully operates under US law. It is plausible that their intention is to source liquidity for their Bitcoin ETF through their own spot exchange. This could be a pre-requisite for orderly trading, liquidity access, and renta formation.
  3. Through, on Sep 21st, 2018 they created a daily auction process to lodge the Bitcoin price merienda a day. This could be a pre-requisite for fair market price fixation.
  4. On Dec 8th, 2018, the Winklevoss brothers inaugurated a webstek specifically for investor relationship management and promotion of the COIN ETF. Taking act to launch the ETF webstek after Three years of conversations with the SEC might be indicative of a switch of perception of the twins, pointing to their optimism.
  5. On Feb 8th, 2018, the Winklevoss brothers communicated to the SEC that they had secured the services of three of the largest high frequency trading firms to provide liquidity and efficiency to the COIN ETF: Convergex, KCG, and Virtu Financial.

Premiums on closed-end fund GBTC suggest the SEC might step up to benefit market function with an open-end ETF

The Bitcoin closed-end fund GBTC floats on the OTCQX exchange with well known premiums. Ter the past few years, there have bot sessions where the GBTC market prices have reached up to 2x-3x televisiekanaal asset value (NAV). The fund has closed every week since inception significantly above NAV. GBTC has bot insanely successful spil an investment voertuig delivering comebacks ter the triple digits to investors, but the closed-end nature of the fund is presenting friction to market participants and an ETF would be a more efficient tracker of the underlying asset.

GBTC market price vanaf share vs NAV vanaf share – Source: Grayscale Investments

More than one chance: three Bitcoin ETFs are under consideration by the SEC

The Winklevoss Bitcoin Trust commenced the application process with the SEC almost four years ago but only last year it entered into the sphere of possibilities with its application for a rule-change for the BATS exchange. However it is not the only candidate to materialize a publicly traded ETF:

  • SolidX Bitcoin ETF (XBTC) applied to become publicly traded on NYSEArca on June 22nd, 2018, being the approval SEC deadline on March 30th, 2018. The main peculiarity of this voertuig is its proposed 100% insurance on holdings.
  • Grayscale Bitcoin Investment Trust ETF (OTCQX:GBTC) applied to modify its current status from a closed-end fund (traded on OTCQX) to an open-end ETF (on NYSEArca) on January 20th, 2018, and by end-October 2018 the SEC should communicate its final decision.

Mighty pro-Bitcoin presence ter Voorzitter Trump’s Administration leans the recuento towards a higher chance of a Bitcoin ETF approval

The Trump Administration is well known for its anti-regulation stance, spil it wasgoed seen with the Dodd-Frank Act repeal. There are numerous pro-Bitcoin enthusiasts involved ter some way or another with the current US administration, including Mick Mulvaney (director of the U.S. Office of Budget nominee), Peter Thiel (Paypal co-founder), Balaji Srinivasan ( CEO and potential FDA director nominee), Travis Kalanick (UBER CEO), and others. Trump’s entourage leans the comprobaciĆ³n towards a more accepting perspective for Bitcoin.


Wij propose the case for a massive increase ter the accessibility of Bitcoin spil an investment asset class if an open-end style fund like the Bitcoin ETF starts trading on a major equity exchange and how this fresh disponibility will grow the comebacks of Bitcoin investors.

Buying pressure on the Bitcoin ETF will shift the request curve of Bitcoin’s digital tokens

Spil vanaf the SEC filing, every Ten,000 units of the ETF can be redeemed or exchanged for the underlying. The COIN ETF shares will influence request of spot bitcoins through their interchangeability.

If Bitcoin is presently a $16 Billion technology startup, the ETF will be omschrijving to its IPO

Presently, Bitcoin trading is predominated by OTC exchanges that operate under no explicit guidelines. A stir into public exchanges will produce:

  • Ensure of regulatory oversight for investors
  • Qualitative increase ter visibility spil an asset class
  • More credibility te the financial toneel
  • Further consideration and analysis of its technical capabilities

Spil Bitcoin has achieved its current multi-billion market value without access to organized financial markets, wij foresee good rente ter case it becomes publicly traded te the form of an ETF.

Useful or not spil an presente currency, Bitcoin will be used spil a diversification asset

Independently of its merits spil a technology or financial innovation, Bitcoin excels spil a lowly correlated asset against major asset classes (see Ark Investments 2018). Spil such, it has a place te modern portfolio management. For spil long spil the Bitcoin network resumes to find use ter the developing world, underground markets or even collectible memorabilia, this emerging asset class will proceed attracting investors looking to reduce portfolio beta.

Bitcoin exhibits a 0.037 correlation with S&P 500 on 30 day comebacks

Because hedge funds ($Two.7 trillion assets under management) and endowment funds ($1.Four trillion AUM) are sophisticated players inclined to zero beta multi-asset portfolios, they will be the least hesitant to take positions to achieve lower terugwedstrijd correlation with equities. After them, other sophisticated investors will go after.

The Bitcoin ETF will invite the entrance of significant amounts of renta, while the event is not accompanied by more units ter circulation

The supply curve is immobilized te the Bitcoin protocol to a maximum total emission of 21 million bitcoins, a circulation to be reached ter 2130. The current volume of bitcoins ter circulation stands at 16,119,688 BTC units (source: Blockchain.informatie) and the surplus up to the maximum 21 million would be issued following a logarithmic schedule that enforces limited supply for Bitcoin.

To manipulate or tegenwerking the supply of Bitcoin and place more units ter circulation, a malicious actor would need to out-invest the Bitcoin network computational power, which presently stands at Three,398,970 Tera hashes vanaf 2nd (source: Blockchain.informatie). With last generation supercomputing hardware (NVIDIA Tesla S2070 GPU parallel processors), the total investment needed to reach the required computational power to switch the supply stands at $150 billion. With custom-made specialized hardware (i.e. made-to-order by a semiconductor fab like TSMC or Samsung), the cost could be diminished to a few billion dollars spil vanaf industry experts. Based on thesis gegevens points, wij consider unlikely any switch ter the Bitcoin issuance schedule.


Our recommendation is to allocate anywhere inbetween 0.2% and Five.0% of portfolio to Bitcoin using an OTC spot exchange. Avoid using the closed-end fund GBTC spil it trades at substantial premium vs NAV.

Ter case of approval of a BTC ETF, our estimated target price for Bitcoin is $Trio,678. The estimate is based on the calculations of Needham & Company of $300 million influx te the very first week of trading of the fund together with our assessment of Bitcoin’s top 8 spot exchanges’ order book depth spil vanaf 3-month historical order depth gegevens.

Te case of rejection by the SEC, our estimated target price for Bitcoin is $551, calculated on the onderstel of a mean reversion script for which wij used the weighted media of the last Five years of prices of Bitcoin spil vanaf gegevens.

It seems unlikely, among all the other reasons, that the commission is going to want to budge forward with a product where the major trading is done on exchanges [te China] that may not be following our AML guidelines.

— David Brill, former Militar Counsel of ter vraaggesprek 1/20/2018

Our counter-argument to this view is that the vast majority of OTC gold purchase transactions are happening also te China and India, with combined purchase volume 9.5x larger than the US. Consumer gold has no AML guidelines and can be acquired without identification requirements te retail shops. Thesis conditions did not present an obstacle to the SEC for the approval of the very first gold ETF (NYSEARCA:GLD) on 2005, and thus wij believe the SEC will go after the same guidance with Bitcoin.

Te parallel, there is strong indication that the Chinese central handelsbank and regulatory organisms requested spil recently spil Feb 8th 2018 an instantaneous enforcement of anti-money laundering procedures on all major Chinese Bitcoin exchanges.


Consumer purchases of gold by country ter 2018 – Source:

The probability of approval for a Bitcoin ETF is higher than what the current market overeenstemming implies. Wij consider this event a potential Black Swan that will have a profound influence ter the investment world. Critical dates for the near term are March 11th (COIN ETF Security Exchange Commission’s decision deadline), March 30th (XBTC ETF decision) and October (GBTC ETF decision). Ter case of ETF approval wij predict a large upside, while ter case of rejection the losses could be limited to 50% of the haber. Our recommendation is speculative buy of Bitcoin spot on OTC exchanges before March 11th, 2018 and hold at least until October 2018.

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