Peacock Scholarship

Bitcoin Exchange Traded Funds: An Overview of a Potentially Flawed Investment Vehicle

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Bitcoin has generated much interest from the financial community throughout its life and utilization as a crypto-currency. In the continual advancement of the market, financiers and fund managers have explored the opportunities of developing investment vehicles utilizing Bitcoin, with multiple firms competing to develop a Bitcoin Exchange Traded Fund traded in the United States. However, under much speculation, the Securities and Exchange Commission (SEC) has denied multiple requests for fund managers to develop a Bitcoin ETF for the financial market. The thesis essay explores the feasibility of utilizing Bitcoin in a fund investment vehicle such as a Bitcoin Exchange Traded Fund (ETF). The paper explores the qualitative and quantitative factors that may impact a Bitcoin Exchange Traded Fund and Exchange Traded Funds' history and structure and analyzing proposals by financial firms and SEC responses to those proposals, and analyzing the Bitcoin market and systemic risks. Finally, an analysis of historical data and potential market drivers is utilized to confirm claims by the financial firms and SEC. The findings indicated that Bitcoin would be challenging to generate return for fund managers. Its risk factors create extra constraints for Bitcoin funds to operate in with no signs of mitigation in the future. Moreover, the volatility and unpredictability of Bitcoin are also caused by the lack of market drivers for the fund. Essentially in its current state, its lack of remedies for its risk factors has caused Bitcoin to be unfeasible to be placed in an Exchange Traded Fund and would place financial firms and its investors at risks.

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  • 06/09/2021
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