Will You Invest in a Bitcoin ETF?


In this clip from the Market Foolery podcast, Chris Hill and Simon Erickson return to the land of cryptocurrency. While many investors remain skeptical, over the past 12 months, bitcoin has quadrupled in value, clearing $1,100. The cast provides updates on this digital currency and how a bitcoin ETF could change the game.

A full transcript follows the video.

This video was recorded on Feb. 14, 2017.

Chris Hill: Here’s something we haven’t talked about in … I don’t even remember the last time we talked about bitcoin, but we’re going to talk about bitcoin.

I feel like, if he’s listening over in Germany, Matt Koppenheffer is smiling, if not outright laughing at me, because I’ve been bearish on bitcoin from the start, and over the past year, the price of bitcoin has quadrupled. It broke the $1,000 mark last week, and it’s dipped back down. But you’re someone, like Matt Koppenheffer, who’s been pretty bullish on bitcoin. First, before we dig into the news with bitcoin, tell me why. Why the bull case for bitcoin? Because, to me, it just seems like Monopoly money, it seems like a made-up currency, and as I have admitted before, the fact that the Winklevoss twins were involved in this doesn’t help the bull case, in my opinion.

Simon Erickson: Right. This is kind of an ethereal discussion here, Chris. There’s a lot of speculation in bitcoin right now. We don’t have any stocks tied to this —

Hill: Not yet. We’ll get to that.

Erickson: Yes, exactly. But it is a very interesting story. Just, generally, my personal thesis, disclaimer, I own one bitcoin, have had quite a year with that. [laughs] 

Hill: Congratulations, that’s worked out well for you.

Erickson: But, I think there’s just a lot of transactional friction in the way that we buy and sell things today. Think about it, we’re built off of a financing infrastructure. You have a bank account that you have a credit card that ties into, you pay your statement at the end of the month, and every step along the way, somebody is taking a small piece of this. But it’s the way that we built it out over the last several decades. And if you build a digital infrastructure correctly, as bitcoin did and Blockchain is trying to do, you don’t need a lot of those steps. It’s basically digital cash. I always think about it as, you’re handing a digital dollar to somebody, and that’s it. There’s no statements. There’s no financing. There’s no APR at the end of the year, anything like that. But to do that, there’s a lot of regulators who don’t like that because you can do bad things with that. You can’t track the person giving you the cash at the end of the day and various other things. That’s had bitcoin held back on what its true potential, possibly, could be. But at the end of the day, you’re starting to see more and more transactions using bitcoin all across the globe, not just in the United States, but in China and Japan and a bunch of different places. Because bitcoin is going to tap out at 21 million bitcoins, once they’re mined, you have a fixed supply and increasing demand, and that’s pushing the value of each one bitcoin up over the years.

Hill: We’ve seen this run up over the past 12 months, and you look at the fact that the SEC is considering three separate potential bitcoin ETFs. Considering approval of any one of the three. Let’s say one of them gets approved — what kind of run-up are we going to see then? Because if we’re seeing this run-up now … this actually gets me, I don’t want to say bullish on bitcoin, but it gets me slightly less bearish as an investor, because ETFs are a way that a lot of people invest if they’re looking to get exposure to something without really having the concentrated upside and, therefore, downside of a single stock. I’m not looking to buy a bitcoin, but I’m slightly more interested in a bitcoin ETF. What happens if they actually approve one of these things?

Erickson: Sure. On the continuum of uncertainty, it goes down a notch. If the SEC is going to say, “This is alright, to create bitcoin ETFs,” and they have until March 11th, I believe, to approve of this, but the people who said, “No way, this is too early, I have so many questions about this even being possible,” those people will start saying, “You know, this still sounds speculative to me, but I think it’s interesting now that the SEC is behind it.” Basically, anything new, almost all of innovation has got a zillion questions when it first gets introduced that, over time, as it grows and gets more and more approvals or people behind it, the questions tend to either linger or go away. And I think that’s what you’re seeing with bitcoin. That’s what the SEC decision is going to have an impact on this.

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