There has been rampant speculation that the US Securities and Exchange Commission will soon grant approval for the first bitcoin exchange traded funds. This refers to “spot” bitcoin, as opposed to funds that trade only bitcoin futures or stocks of bitcoin related companies. Also it refers to arbitraged exchange traded funds, as opposed to closed end funds such as GBTC (Grayscale Bitcoin Trust) which literally are “exchange traded funds”, but lack the authorized agent arbitrage mechanism that tends to keep prices close to net asset value. Such funds would continue to exist, but would then be allowed to convert to the ETF format.

This could be bullish for bitcoin prices. Indeed, this is arguably the main reason for the recent rally in bitcoin prices. Speculators are already bidding up bitcoin in anticipation.

It’s not the most unreasonable trade. It would make it easier for people to buy bitcoin, and could result in a bump in demand. But it’s also easily overestimated, since investors can already buy funds such as GBTC. As of right now, the only real limitation is that many pay an extra commission for its “pink sheet” status, and the fund can readily trade well away from net asset value. Presumably once it were granted ETF status, it could trade without these drawbacks.

For the record, I support approval, provided bitcoin trading and that of any bitcoin tracking funds can meet the same standards that are required of any other asset. Buying GBTC or other bitcoin vehicle in advance of approval may also be a worthwhile speculation.

But I would also regard it as a “buy the rumor, sell the news” type of trade. Bitcoin remains an asset with no intrinsic value and ETF approval would do nothing to change that. It is likely so heavily promoted because large holders want to sell. Think of it like digital casino chips … you might come out in the green but the odds favor the house. Bet only money you can afford to lose.

While almost anything can happen, I remain skeptical about bitcoin and other cryptocurrencies. They are often promoted as a way to end run the financial orthodoxy, to escape the “system”, but are heavily promoted by the orthodox financial establishment. Donning my tin foil hat, I could wonder if it is a concerted effort to get people to lose interest in gold. It’s not the most ridiculous idea … after all it is expressly promoted as “digital gold”, and media articles are often led with a graphic of a gleaming golden coin, as if to implant a subliminal suggestion that it’s just the modern high tech version of the same time-honored form of money. The most vulnerable would be younger folks already conditioned to prize all things new and tech and tut-tut the old as archaic and outmoded. Just what those that might wish to impose tyranny via centrally controlled assets might lust for. Any asset that relies on the internet to own and trade is within their grasp, and cryptocurrencies add to the already massive stable of network-resident assets.

But with or without the shiny cap, with each advance the crypto enthusiasts’ pitch that cryptos are that road less travelled outside the system is getting harder to swallow. Approval of a spot bitcoin ETF would further cement its status as an integral part of the financial establishment.