Could Bitcoin ETN’s Spark Wall Street Adoption?

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Ed Tilley, chief executive, president, and chairman of the Chicago Board Options Exchange (CBOE), recently exclaimed that the insufficient amount of Bitcoin-related exchange-traded Notes (ETNs) is a major sticking point, which is deterring Wall Street’s hotshots from foraying into crypto.

The Power Of An ETN

In an article published by the online finance news outlet, Business Insider, Tilley apparently stated that Bitcoin is currently “hamstrung” by the lack of BTC-related financial products aimed at so-called “mom-and-pop investors.”

According to the piece, the CBOE president explained that ETNs and futures are critical to each other’s success, as these financial instruments are available to both retail and institutional investors. Tilley exclaimed:

“The power of having that future there is also having an ETN that is more attractive to retail, and then institutions can lay that risk off on the listed futures market.”

But hold on… what’s an ETN? An exchange-traded note is a kind of unsecured, unsubordinated debt security. They are similar to ETFs, which are traded on major exchanges. Unlike other debt securities, such as bonds, ETNs do not include annual payouts, also known as ‘Coupon Payments’. ETNs often aren’t physically-backed.

According to Tilley, exchange-traded notes are easily accessible to retail investors due to their low barrier for entry, as opposed to futures which requires some time to set up a trading account. Making easily accessible crypto-centric ETNs available to average investors could work wonders for the evolution and adoption of digital assets.

Not So Popular

In the twelve months since the first issuance, interest in the CBOE’s Bitcoin futures contracts has dwindled nearly 35%. On Jan 17th, 2018, open interest in the platform’s BTC futures was 5,306. The current figure (18th Jan 2019) stands at 3,475.

In comparison, the CBOE’s most successful futures contract, VIX (Volatility Index) futures, has a current open interest of 368,598 (figures as of 18th January 2019). The exchange’s CEO suggested that the success of the VIX futures was down to two main reasons. The first being the liquidity running through the S&P 500. The second reason is that there exists an institutionally traded futures contract available on the Chicago Mercantile Exchange (CME).

Bleak Outlook?

According to the Business Insider article, Tilley cannot foresee how the cryptocurrency industry can move forward until talks resume with the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

Bitcoin ETFs are cited to be an integral phase in the development of the flagship cryptocurrency, as such a vehicle would help cryptocurrencies become an established, bonafide asset class. However, in spite of many cryptocurrency firms applying to the SEC seeking approval to launch a BTC-related exchange-traded fund, none have yet been successful.

Cantor Fitzgerald’s senior managing director recently claimed that the likelihood of a crypto-based ETF being approved is slim. Nicknamed the “godfather of ETFs”, Reggie Browne said that such approval from financial authorities will happen “no time soon.”

Japan’s Financial Services Agency (FSA) recently nullified rumors that it would look at approving crypto-linked ETFs.

As recently reported by Live Coin Watch, hedge fund manager Brian Kelly also insinuated that the approval of Bitcoin ETFs in the near future is highly unlikely.

Patience Is A Virtue

Despite the seemingly hostile regulatory environment in the financial sector, many crypto-based investment firms are remaining optimistic. Such firms include Wilshire Phoenix and Bitwise, who have both recently submitted S-1 filings to the SEC, seeking approval of Bitcoin-laced ETFs.

Although many pundits are suggesting that crypto-ETFs won’t come to fruition for some time, I believe that with patience, we will soon see the aforementioned financial products on the market.

The demand within the digital currency sector is showing clear signs growth, with crypto payment service provider, BitPay, recently announcing another record-breaking year for the firm.

Your Thoughts

Do you think Bitcoin-ETNs will give the crypto markets a well-deserved boost?

Let us know your thoughts in the comments below 🙂

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