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Toroso Asset Management
Each week, the TETF.index research team discusses the growth potential of the ETF ecosystem. Our positive outlook is supported by the belief that ETFs are simply a better vehicle than other financial instruments; we think of ETF as Fintech innovation in a world of obsolete financial products. In this week's TETF.index update, let's look at another Fintech innovation that threatens to change the way ETFs evolve and grow: Blockchain.
Most investors know Blockchain as the technology behind cryptocurrencies like Bitcoin. Although this is true, Blockchain is much more, in fact the term Blockchain is never mentioned in the original Bitcoin White Paper by Satoshi Nakamoto. Blockchain allows you to create and protect unique data in the digital world without a reliable third party. It comes from the combination of three disciplines: database management, cryptography and economic game theory. The nexus of these three disciplines can interrupt the daily work of many powerful and expensive institutions, from the banking system to politics. Despite the potential, the clamor of Blockchain and Bitcoin has declined. As of October 2018, both Blockchain and Bitcoin have lost the 100 best search terms of Google, lower than search terms like Autozone!
What does this come with ETFs?
The concept of Bitcoin is designed to eliminate the need for a reliable third party in financial transactions. Ironically, an ETF with exposure to Bitcoin will act as a third party of trust by verifying access to Bitcoin. This contradiction is not lost in the believers of Bitcoin, even to the point that the possible approval of a Bitcoin ETF has had a significant influence on Bitcoin price movements. And possibly, the last decline in cryptographic pricing coincides with another complicated fork and these SEC comments:
In fact, Tuesday, SEC President Jay Clayton doubled the idea that the Bitcoin market was not safe for investors.
Rules and surveillance to prevent manipulative techniques do not exist in all exchange locations where digital currencies are exchanged, making it cautious to spotlight a bitcoin ETF, he said at the "CoinDesk Consensus: Invest" conference.
The issue of custody also remains a critical point for the president. He said that any asset that underlies an ETF should have good custody. The risk in an ETF should be only the risk of the value of the underlying asset and should not include the risk of theft or disappearance.
