Bitcoin ETF: Tread with Caution Says Blockchain Entrepreneur Jonathan Manzi

The traditional investment field has been wary of Bitcoin and other cryptocurrencies since the beginning. Will that change?

On October 18, 2021, ProShares launched the ProShares Bitcoin Strategy Exchange Traded Fund (ETF) for trading futures on the NYSE Arca exchange. It is the first Bitcoin ETF to be accepted for trading in the United States. This marks a sea-change in approval for cryptocurrencies as it will begin to enable conventional funds to invest in BTC, giving a considerable boost to the crypto sector.

Jonathan Manzi is only in his early thirties but is already a seasoned entrepreneur. He is the current CEO of Beyond Protocol, a blockchain development company. He is a graduate of Stanford University and reached his first $1 million by the age of 16. He cautions that investors in cryptocurrency ETFs may be in for "a wild ride."

"The primary function of ETFs to date has been to provide exposure to an asset class by tracking a basket of investments with a common connection — e.g. oil, biotech, gold, or natural gas. There are also stock index ETFs which track broader markets, like the S&P 500," Jonathan Manzi said.

"Many traditional investors have yet to buy Bitcoin; an ETF taps into this demographic, allowing those with accounts at large brokerage firms to continue to manage all of their assets under one roof while still gaining exposure to Bitcoin," Jonathan Manzi explains. The US SEC is very authoritative globally and cautious about cryptocurrencies – if it approves an ETF, many other countries will follow. US citizens are already investing in cryptocurrencies abroad without the protection that regulation and trading standards would offer. The capital would then remain in the USA, which makes a difference to the domestic economy. Besides Proshares, there are at least five other Bitcoin ETFs in the pipeline for possible approval by the SEC soon.

SEC chairman Gary Gensler says that he favors the futures route for a Bitcoin ETF because it offers the public “substantial investor protection” and in this regard differs from previously rejected applications.

On November 8, Australia's financial regulator, the ASIC, became the latest government overseer to approve spot ETFs in the two biggest cryptocurrencies, Bitcoin and Ethereum. Many analysts believe that Ethereum Future ETFs will also become available in the next couple of years. That could trigger more ETFs in the large-cap cryptos such as Litecoin (LTC), Binance Coin (BNB), or Ripple (XRP).

New technologies take a while to embed in societies. Mobile phones needed about two decades to become everyday items – the first ones were the size of bricks, but the technology developed rapidly. 3D printing is obviously an upcoming contender, but it is not out of the "early adopter and geek" silo yet.

The cryptocurrency sector is further developed than that but is some way from general acceptance in society. Being able to invest seamlessly in cryptocurrencies, for example, via a pension fund or conventional market tracker fund, is fundamental in opening the sector up to the general investing public. ETFs are a crucial step along the way from "outsider" status to being recognised as a regular financial investment.

One of the primary benefits is that these ETFs track Bitcoin rather than invest directly in the coin. This means that investors do not have to deal with the complexities of exchanges, hot and cold wallets, and the danger of losing access to the "keys" to use the currency or token – which is a genuine danger, as many people have found.

Jonathan Manzi continues, “Anyone who’s followed Bitcoin — and crypto more broadly — for any length of time knows first-hand how much of a roller-coaster its path from obscure digital money to world-changing technology has been. And while detractors will point to volatility, the fact remains that Bitcoin has outperformed every other major legacy asset in existence since 2009,” Manzi concluded.

“The last time we saw something like this as a society was the emergence and eventual global dominance of the internet itself. And while there are many other cryptocurrencies with wonderful and innovative use-cases, Bitcoin has continued to thrive, driven by the purity and simplicity it was designed with. Its inherent traits made it uniquely well-suited as the people’s choice for monetary freedom — a hedge against tyranny for the masses, built with immutable code.”

If the current bull market continues into 2022, mirroring what happened last year, Bitcoin and cryptocurrency enthusiasts will be in for a profitable season. Regular financial institutions are taking notice. No doubt that new ETFs and other cryptocurrency investment vehicles will be created in the near future. This will mean more institutional investors such as hedge funds, asset managers, and family offices will increase their backing of the sector. They will bring with them significant levels of capital and stability to the notoriously temperamental crypto market. More investment such as this will likely continue to drive prices upwards.