Soros and new ETFs: is bitcoin ready for a bounce?

George Soros

The recent turmoil in the crypto-world saw bitcoin plunging below 7.000 dollars, far away from the all time high of 20.000 dollars touched on the 18 December 2017. However, the discount prices seem to have attracted a famous investor such as George Soros that announced on the 6 April 2018 that he is considering to start trading cryptocurrencies in his hedge fund. We should remember that Soros called cryptoassets a bubble in January 2018.

Old finance vs New finance

Unfortunately for the hodlers and crypto enthusiasts, the introduction of the bitcoin futures allowed the big guys of the financial world to take short positions on bitcoin. Since their first day of trading, as shown by a Zerohedge article, the derivatives on bitcoin allowed to bet against bitcoin price and make a profit from its depreciation. Before the introduction of these contract, the investors gained from the appreciation of bitcoin.

Example: a trader buys a bitcoin at 10.000 dollars, and he sells it for a profit at 12.000 dollars. He gains 20% of its initial investment.

The introduction of the future allowed to make money from the depreciation of the underlying asset (the bitcoin):

Example: a trader is short-selling bitcoin when its price is at 10.000 dollars, then the price drops at 8.000 dollars. By closing this position, he gains 20% on its investment.

As we can see from this simple example the introduction of the future allowed to make money even if bitcoin price drops. By looking at bitcoin chart and market dynamics in 2017 it seems that its price has been pumped "to the moon" in order to short it from the highest possible level after the futures introduction. With these statements I am not saying that bitcoin is worthless but only that in the recent past the prices might have been subject to some manipulation. I do not exclude that sooner or later bitcoin will set new all time highs. 

Bitcoin ETF - Here we go again

According to the press, Direxion Asset Management sent at the beginning of 2018 a request to the Security and Exchange Commission (SEC) for the authorization of 5 Exchange Traded Funds (ETFs) that replicate the bitcoin future price. These instruments would allow to open long or short leveraged position (from 1.25x to 2x) and consequently the investor could obtain returns that are 25%, 50% or 100% more than the daily performance of the benchmark. Of course, even the eventual losses are amplified and for this reason there financial instruments are very risky considering the high volatility of cryptocurrencies. 

We are going to see soon if the American financial markets authority is going to allow these ETFs after the rejection of the Winkelvoss twins' ETF in the first quarter of 2017.

Alessandro Greppi, PhD avatar
Alessandro Greppi, PhD

I have a deep interest and passion for financial markets, trading and fintech. During my PhD, I’ve been studying the American equity market and how to detect buy and sell signals through Bayesian networks models.