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U.S. regulators barely corralling feverish bitcoin mania -Breaking

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© Reuters. The advertisement for a crypto exchange shows a Bitcoin symbol in MTR station at Hong Kong, China. October 27, 2021. REUTERS/Tyrone Siu

By Jamie McGeever

ORLANDO (Reuters) – The insatiable demand of bitcoin has forced U.S. regulators into a delicate balance between opening the booming marketplace to investors and protecting them from this highly speculative and volatile asset.

Last week’s authorization of the first ever bitcoin futures exchange traded funds and doubled down its resistance to cash-based ETFs may have helped the Securities and Exchange Commission achieve the right balance.

Investors are exposed to three types of risks from bitcoin: Market opacity, which includes highly concentrated ownership and the potential for price manipulation and fraud, and market infrastructure, which allows investors easy access to the asset.

SEC gives green light for ETFs that track bitcoin futures on Chicago Mercantile Exchange, but keeps cash-based ETFs off the table. Investors who are able to stomach the downside of ETFs will be able to reduce the cost of these two.

The SEC is concerned that “it’s unregulated” and could be subject to manipulation or fraud. These concerns are serious,” states Todd Rosenbluth of CFRA New York, who is head ETF/mutual fund research.

The spot bitcoin price soared above $67,000 last week, while open interest in the Chicago futures markets reached its highest level since 2004. ProShares, Valkyrie and Valkyrie also launched their ETFs.

The approval of more bitcoin ETFs will be forthcoming. They are expected to track futures contracts and not the cash market in the weeks and months ahead. That is about it for now.

The skepticism of regulators regarding bitcoin and cryptocurrency has been a longstanding, deep-rooted issue. The features of fraud and manipulation are not considered bugs.

“It is really about bringing as many of these spaces within the investor protection scope. Here’s the truth. It really is “a bit of Wild West” without that,” Gary Gensler, Chairman of SEC, told Yahoo Finance Monday. He stressed that crypto markets worldwide worth $2.5 trillion are largely unregulated.

400% VALUE FOR THE RISK

ETFs have potential or actual costs for investors.

Analysts say that futures do not accurately track spot prices so investors may miss out on 5% to 10% potential upside in a single year. Buyers will need to move into the following month as soon as their contracts end. This is because bull markets have a lower price.

Gensler’s latest salvo comes at a very volatile time for crypto currency. He made similar remarks the day before ProShares ETF launch.

Bitcoin’s October gains are 45%, putting it on track to be one of the best months. ProShares Bitcoin Strategy ETF has amassed more than $1 billion assets in two record-breaking days.

Investors are eager to catch the wave of this wave. However, bitcoin and other cryptocurrencies have been gaining popularity as a de facto hedge against inflation.

JP Morgan strategists warn that cash is being pulled from gold ETFs despite rising inflationary expectations and pressures. Many wealth managers have replaced gold in their portfolios by bitcoin and other crypto assets.

Paul Tudor Jones, billionaire hedge-fund manager said last week that crypto “certainly” is ahead of gold. Although he would rather own bitcoin in physical form than an ETF, “the SEC approval should be a great relief.”

On Monday, CoinShares revealed that crypto products and funds received a record $1.5 Billion in inflows. This was their 10th consecutive week of investment. Bitcoin received the largest portion of this $1.45 trillion.

The total inflows this year, $8 billion, already surpass the 2020 record of $6.7 trillion. The report revealed that bitcoin accounted for $6.1 billion.

The 400% price increase of bitcoin over the past 12 months will ease investor worries about its volatility (bitcoin lost half its value between May-July) and many other risks. This will only increase demand for cash-based ETFs.

The SEC will remain firm for the time being.

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