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Facebook Crypto Plan on Rocky Ground: ETFs Under Pressure

Bitcoin had a strong spell this year, having gained about 111.6%. However, it lost momentum since the second half of the year, plummeting about 47% since late June. Inthe past month, it lost about 12.2%.

The long-standing SEC-decision of not approving the cryptocurrency has led to volatility in the space. However, pressure seems to be mounting after Facebook (FB) CEO Mark Zuckerberg, in testimony before Congress, expressed concerns about “whether the company's cryptocurrency project Libra was going to work.” Bitcoin slipped to its lowest on Oct 23 against the dollar since the middle of May.

Facebook startled the investing world, regulators and lawmakers on Jun 18 with its announcement of launching its own digital coin, Libra, in 2020. Facebook’s announcement contributed to a meaningful crypto rally in late June whenbitcoin pricestouched the $13,800 mark.

Though uncertain about the future and viability of the Libra project, Zuckerberg “sought to reassure lawmakers that Facebook would not back any move by the crypto project, which comprises a consortium of 21 members including venture capital firms and nonprofits, to launch the digital currency until it had satisfied all U.S. regulatory concerns.” Per some analysts, the Libra project may never be a reality and might even upend the entire cryptocurrency space.

Regulatory Hurdle

Pressure from regulators is not new for bitcoin. The SEC hasn’t said yes to any ETF launch proposal on bitcoins so far. SEC is worried about the extreme price volatility in cryptocurrencies and liquidity in bitcoin-related funds. Per Reuters, the virtual currency can be deployed to quickly move money anywhere in the world without any central authority’s intervention, such as a bank or government. The market is pretty unregulated at the current level.

Not only this, probably sensing another likely SEC disapproval, CBOE BZX Exchange withdrew its VanEck/SolidX bitcoin ETF proposal on Sep 13. The news went out on Sep 17 through a notice published by the SEC. Investors should note that the latest proposal for a bitcoin ETF was Van Eck’s third attempt.

The decision of withdrawing the proposal came just weeks after Van Eck began offering a limited Bitcoin ETF for institutions. In fact, the limited version of bitcoin ETF failed to garner enough response from the market (read: Top ETF Stories of September).

Overvaluation Concerns in Crypto Space?

Despite the absence of any material progress, the crypto space has gained materially this year. So, some overvaluation concerns are definitely associated with it. Charles Hayter, CEO of CryptoCompare, pointed out that "we have seen weakening volumes and regulatory tightening from a number of jurisdictions" lately.

ETFs That May Feel the Pressure

Blockchains are related to bitcoins. Per a source, “the blockchain in Bitcoin literally acts a ledger; it keeps track of the balances for all users and updates them as money changes hands.”So, blockchain ETFs like Reality Shares Nasdaq NexGen Economy ETF BLCNAmplify Transformational Data Sharing ETF BLOK and First Trust Indxx Innovative Transaction & Process ETF LEGR may deal with some pressure on the Facebook news.

Investors should note that mining of cryptocurrencies involves the usage of semiconductors. So, if the cryptocurrency space takes a hammering, investors may see pressure on semiconductor ETFs like Semiconductor Vaneck Vectors ETF SMHInvesco Dynamic Semiconductors Portfolio PSI and SPDR S&P Semiconductor XSD (see all technology ETFs here).

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VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
 
Invesco Dynamic Semiconductors ETF (PSI): ETF Research Reports
 
SPDR S&P Semiconductor ETF (XSD): ETF Research Reports
 
Reality Shares Nasdaq NexGen Economy ETF (BLCN): ETF Research Reports
 
First Trust Indxx Innovative Transaction & Process ETF (LEGR): ETF Research Reports
 
Amplify Transformational Data Sharing ETF (BLOK): ETF Research Reports
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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