Investors can short Bitcoin, but what does that mean for the cryptocurrency market?

In April 2021, the Coinbase (NASDAQ πŸ™‚ exchange platform launched its Initial Public Offering, an event that coincided directly with the record price of $ 50,000, an increase of 66% since the beginning of the year. Despite attacks by financial giant Charlie Munger on Bitcoin and they continue to rise. Obviously, cryptocurrencies don’t care about the feelings of old, wealthy boomers.

Bitcoin could take another shock, however. The Toronto Stock Exchange recently hosted the first ever inverse Bitcoin ETF (Exchange Traded Fund), which opened on Thursday, May 6th.

BetaPro Inverse Bitcoin ETF (TSX πŸ™‚ enables investors to take short positions against Bitcoin. This fund allows investors to get short exposure without having to use a margin account. All transactions can be completed without opening a separate currency account, which makes the process essentially as easy as buying or selling stocks. Even investors with individual retirement accounts have the option of gaining this type of exposure through Bitcoin.

What does this mean for Bitcoin and for cryptocurrency in general? It is too early to say for sure right now. Here’s what we know

Bitcoin may live at the intersection of technology and finance, but that particular matter is one of economics. Because, as with all economic affairs, it comes down to one word that most economists are obsessed with – incentives. This evolution should remind us that cryptocurrency is ripe as a field for economic analysis, especially as more data keeps popping up.

Since its inception, much of Bitcoin’s strength has been based on its incentive-based structure, where compensation is to keep the network going. So far the only incentive has been to work with the system, not against it. Until now, that is.

This new system, which gives investors the chance to make money by betting against Bitcoin, has the potential to change the valuation of cryptocurrencies, even though this ETF only deals with Bitcoin. This development comes at an opportune time – the higher the price of an asset, the greater the interest in selling short.

This isn’t the first time investors have tried betting against Bitcoin. What’s noteworthy about this development is that the concept has drawn serious interest for the first time, at least enough for investors to pause and consider what it could mean for them. Instances of bitcoin shorting have typically been offered by offshore institutions, the very kind of scenario that tends to raise red flags with investors.

Failing to instill investor confidence, these questionable systems posed minimal threats to cryptocurrency markets, largely because they lacked the necessary vehicle to bet against a major cryptocurrency – exactly what an inverse bitcoin ETF did enables.

The demand for such a vehicle is anything but new. The United States Securities and Exchange Commission (SEC) has been receiving Bitcoin ETF applications from Wall Street for years but, unlike Canada, has found reason to decline all of them, often citing reasons that involve the potential for currency and market manipulation . Their inability to move faster has allowed Canada to beat them in one of the most important cryptocurrency-related milestones to date.

What can investors expect from the launch of this inverse fund? In short, the potential is looming for a huge market opportunity for people wealthy in traditional currencies, many of which have criticized Bitcoin since it first hit the headlines. For the Bitcoin skeptics who operate in high financial circles, the chance has finally come to finally prove their point of view on the decentralized currency.

Crypto enthusiasts will likely remember the day in 2018 when Bill Gates, speaking on CNBC’s Squawk Box, labeled Bitcoin as a type of “greater fool’s theory” investment and stated that he would short Bitcoin “if it did there would be an easy way ”. it. “Gates gave no explanation of what that might look like. He probably wasn’t aware then. Today we know.

An inverse bitcoin ETF can potentially offer exactly what it was looking for. For Gates and others like him, it could give them an opportunity to lower the price of Bitcoin by betting against it and putting pressure on the price of the currency. Ironically, the aforementioned Squawk Box episode also featured well-known Bitcoin critics Warren Buffett and Charlie Munger. The latter recently made headlines for hating the success of Bitcoin and citing its alleged usefulness for “hijackers and blackmailers”.

While the controversy in public discourse is as old as Bitcoin itself, many crypto enthusiasts don’t believe that certain currencies deserve their current valuation. The ability to take short positions offered by an inverse ETF could allow them to finally take action to bring their value down.

Should investors be concerned that this new vehicle is undermining the sustainability of Bitcoin or the broader cryptocurrency markets? So far it is uncertain, but it does not yet seem likely.

While it is true that this ETF is likely to have a negative impact on the price of Bitcoin, it is also important that the system withstand natural market forces, such as people taking positions on them. If Bitcoin is to be able to stand on its own, its asset prices must be able to withstand short-term pressures.

This inverse ETF was inevitable as it is part of market maturity, a natural evolution of a mostly healthy evolution. Bitcoin will serve as a canary in the coal mine for this market experiment. If it proves successful, similar inverse funds for other popular cryptocurrencies like Ethereum and.

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