ETN vs. ETF: Which Is the Investor’s Dream?

There has been a big push for investors to be able to buy Bitcoin without actually having to buy the digital currency. Products — such as futures — have entered the market and upon their arrival in early December last year, Bitcoin rallied toward $20,000.

However, the biggest prize on offer for investors — mainly of the institutionalised variety, who are still skeptical about owning Bitcoin — is an exchange-traded fund (ETF). There has been a push, through the SEC, to try and get a Bitcoin ETF in place for some time now, starting with the Winklevoss twins’ first attempt in March 2017.

Meanwhile, a product, called Bitcoin Tracker One, which has been trading on the Nasdaq Stockholm exchange since 2015, offered what is known as an exchange-traded note (ETN), and this week, it was suddenly quoted in dollars.

The ETN is considered a ‘soft’ alternative to the Bitcoin ETF that many are chasing after, but even with this move to make it accessible to an audience in the United States, separate from their country’s regulations and the U.S. Securities and Exchange Commission (SEC), there was not much movement in the market.

It seems that, even with the option to buy an ETN, U.S. investors — and the Wall Street money they can bring to Bitcoin — are not biting. There was no excitement in the market — a market notorious for taking news as a catalyst for up-and-down movements. This could have to do with the fact that this ETN is not an ETF, but it could also be the heavy bearish sentiment.

Why an ETN or an ETF?

These products, which allow to invest in Bitcoin with relative safety as investors do not own the actual commodity, have been highly praised by many, but they also have their detractors.

An ETF is a marketable security that tracks either an index of funds, a commodity or a basket of assets — and in this case, the asset is Bitcoin. So, what would happen, should the SEC allow a Bitcoin ETF, is that the fund would purchase an underlying amount of actual Bitcoin and distribute those funds into shares, which are then distributed to shareholders.

Thus, they make it far more comfortable and familiar for the institutional investor who has been using ETFs for other assets and commodities, and this might be why many think it could be a big entry point for a lot of money into the Bitcoin space.

An ETN, on the other hand — seen as a ‘soft’ ETF — is a debt instrument that is backed by its issuers, such as a bank, rather than a pool of assets. Often, they focus on esoteric strategies that don’t easily fit into a fund.

The interesting debate about whether these types of products are needed in the cryptocurrency ecosystem is often exaggerated by the broad and all-encompassing nature of the space. There are traders, blockchain engineers, get-rich-quick types, crypto-anarchists and cryptocurrency purists who are all operating around Bitcoin and other cryptocurrencies and all have their own beliefs.

Andreas Antonopoulos is quite against the idea of a Bitcoin ETF, stating:

“I am going to burst your bubble […] I know a lot of people want to see an ETF happen, because of ‘to the moon’ and Lambos and all of that. […] I still think it is going to happen, I just think it is a terrible idea. I am against ETFs. I think a Bitcoin ETF is going to be damaging to the ecosystem.”

Antonopoulos’ criticism is not that an ETF would cause prices to drop or investments to stop. In fact, he goes on to state:

“Everybody is so excited about ETFs, because what we have seen in other markets is [that] when an ETF becomes available — as we saw in gold — the price really increases dramatically, as suddenly that commodity becomes available to a lot more investors. And these investors pile on.”

While many see ETFs as the kickstart that the crypto markets need right now from a price point of view, Antonopoulos argues that the real dangers of the introduction of ETFs lie somewhere else:

“But, the other side of it is that there [are] always these claims that these commodities markets are heavily manipulated. And opening up these ETFs only increases the ability of institutionalized investors to manipulate the prices of commodities — not just on the markets where they are traded as an ETF, but also more broadly.”

Why this ETN is not a market-mover

Taking into consideration assertions that ETFs could skyrocket the price of a commodity as institutionalized investors pile into the market, it could seem strange that the announcement of this option — i.e., an ETN that is able to be traded with dollars — brought very little movement in the market.

One could assume that a smaller, ‘safer’ option to an ETF would be snapped up and popular for the institutionalized market, but perhaps these investors are holding out — or are still too bearish.

Jeff Kilburg, the founder and CEO of KKM Financial, explains that Bitcoin and its up-and-down volatility is going to continue until a decision is reached on ETFs and that even the ETN won’t have much say in it all.

“I think there will be continued volatility, but it really is contingent on this exchange-traded fund. […] These long-term, bullish buyers have to understand that people are going to have access globally to an exchange-traded product and, if that comes in — and we do get some absolute determination that it is coming short-term […] this fall — then I think the rally continues.”

Kilburg is clearly optimistic about the power an ETF would have on the market, and so is Bart Smith, the head of the digital assets division of the global investment market giant Susquehanna International Group, who says that the ETN has gained some traction, but is nowhere near as explosive as the possibility of an ETF.

“What you are seeing now is that we are right back to where we were. A month ago, we were talking about breaking out, but this is a bear market rally. Until we break to new highs, people are not buying.”

Smith follows in Kilburn’s reasoning that this ETN is not as big as a potential ETF would be:

“This is not as big as [it would be] if it was SEC regulated. An ETF in the U.S. — that was SEC registered — would have a much bigger effect. But, if there is something that is driving new money into the price of Bitcoin, then you would imagine it would raise it up.”

The ETF Holy Grail

With an ETN now available to U.S. investors — as well as futures trading possible through a number of institutionalized trading houses — Bitcoin is still not reaching new heights. There is a lot of hype and excitement about a possible ETF, as the SEC continues to mull over a number of applications for various Bitcoin ETFs.

While no one can predict the future of the price of Bitcoin and how it will react to the news of an ETF, the sentiment is strong from most that it will make a big difference. The feeling is that there is a mountain of money waiting to enter the Bitcoin space that is being held back by nontraditional methods of investing. If this barrier is broken down, is it possible Bitcoin will surpass $20,000 again?

Cryptocurrency Firm Pantera Capital Seeks $175 Million For Third Venture Fund

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Pantera Capital, which has pioneered investments in cryptocurrency assets, has set its goal for its third venture fund at $175 million, surpassing the $25 million raised for its second fund and the $13 million from its first one, according to TechCrunch.

A new filing for a Pantera venture fund offering with the Securities and Exchange Commission notes the company has raised $71.445 million in commitments from 90 investors. The new offering, which began on July 31, 2018, will last more than a year. Dan Morehead, the founder of Pantera Capital, is listed as an executive officer in the new filing, along with Matthew Gorham and Pantera Advisors LLC.

Paul Veradittakit, a Pantera partner, said the amount already raised represents the first close.

The filing, signed on Aug. 15, 2018 by Ryan Davis, chief financial officer, declined to disclose the revenue size of the company issuing the offering. No proceeds were proposed as payments to persons named as executive officers, directors or promoters of the new offering.

Also read: If bitcoin is rat poison, the banks are the rats: Pantera Capital CEO

Pantera Capital is focused exclusively on cryptocurrency and blockchain projects, as it sees blockchain as the next step in the evolution of equity, and as the “final piece” of the internet protocol. Morehead has said that investments in bitcoin can go up 25 times.

Pantera Capital’s funds typically have 30 different cryptos to offer exposure to a wide variety of assets.

The company’s investment strategy is to invest early in token sales of the most promising blockchain protocols as a way to maximize returns.

Veradittakit and other company officers stated in a recent conference call that institutional capital is on the way for cryptocurrency.

Morehead last year said an unnamed strategic investor and institutions and individuals interest in exposure to the crypto market had invested in the company’s bitcoin hedge fund, which has already invested in altcoin projects such as Civic, 0x, FunFair and OmiseGO.

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SEC Intensifies Probe Into Biotech-Turned-Crypto Mining Firm Blockchain Riot

The U.S. Securities and Exchange Commission (SEC) has intensified its investigation into crypto mining firm Blockchain Riot, according to the firm’s latest 10-Q quarterly report filed August 14.

Riot Blockchain is a former biotech firm that changed its name to contain the word “blockchain” last year, seeing valuations skyrocket from $8 a share to over $40 as a result, according to a CNBC report. It is reportedly currently operating a crypto mining facility in Oklahoma City.

This week’s quarterly earnings report reveals that the firm received a letter from the SEC on July 30 indicating that the agency had begun an action “Pursuant to Section 8(e) [of] the Securities Act of 1933,” with particular scrutiny given to Riot Blockchain’s registration statements.

Under Section 8, if the SEC thinks that the registration statement contained “any untrue statement” or omitted any “material facts,” it may “issue a stop order suspending the effectiveness of the registration statement.”

Issuance of a stop order would mean that no shares of the company could be traded until the agency considers that deficiencies have been addressed. Reed Brodsky, partner at law firm Gibson Dunn, is quoted by CNBC as saying that:

“This SEC subpoena and the order do not appear to be the type of regularly issued subpoena in the normal course of the SEC’s oversight of registrants. The company has to take this very seriously. An adverse finding by the SEC could be devastating.”

Jake Zamansky of securities law firm Zamanksy LLC added that “the fact that the SEC division of enforcement is involved suggests they are considering securities fraud action against the firm,” CNBC reports.

As Cointelegraph previously reported, Blockchain Riot had already received an a SEC subpoena April 9, which the firm had brushed off at the time, saying that “many companies engaged in blockchain and cryptocurrency businesses have received subpoenas from the SEC.”

CNBC’s report notes that the April subpoena related to matters that included “the proper asset classification, applicability of the Investment Company Act [of] 1940, to the Company’s business and affairs and accounting treatment of its cryptocurrency.”

Shares of Blockchain Riot reportedly dropped by over 12 percent on Wednesday, CNBC notes.

This March, the SEC embarked on a widely publicized crypto probe, after chairman Jay Clayton pledged to increase scrutiny into firms that seek to “capitalize on the perceived promise” the blockchain buzz.