Regulation 4 min, 21 sec READ

by Mike Dalton

Bitcoin futures platforms and ETFs are being stalled by the government shutdown. Will these merely be delayed, or is the threat more serious?

The shutdown of the U.S. government has hit its one-month mark, and for the crypto world, the shutdown could not have come at a more inopportune time. Prior to the shutdown, a few important crypto projects aimed at Bitcoin futures platforms and exchange-traded funds were scheduled for regulatory approval, and all of the pieces seemed to be in place for success.

Although regulators have taken an interest in virtually every aspect of the cryptosphere, the shutdown has primarily affected these two important types of projects. The futures and ETF initiatives were poised to provide major breakthroughs, but they are now hanging in limbo.

Both futures and ETFs hold massive appeal for institutional investors, and many analysts believe that they will allow Bitcoin to break into the world of traditional finance. The government shutdown means that delays are inevitable. But will the shutdown take a deadly toll on these projects?

Trading Platforms Face Delays

Long before the government shutdown began, the Commodity Futures Trading Commission (CFTC) began to take an interest in regulating emerging crypto trading platforms. Many projects have sought approval from the CFTC, but one of the most recent is Bakkt, an eagerly-awaited Bitcoin futures trading platform.

Thanks to its close association with the Intercontinental Exchange, which operates the New York Stock Exchange, many believe that Bakkt will be extremely successful. Additionally, Bitcoin futures have been trading on CBOE and CME since December―meaning that Bakkt’s main innovation is the fact that it settles futures contracts in crypto, not simply that it trades futures.

In short, Bakkt’s prospects look quite good. Unfortunately, the project has been delayed during the shutdown and it will not meet its January 24th release date―a date that was itself a result of a previous delay. Although it seems likely that Bakkt will successfully gain approval once CFTC activity resumes, the continuous delays are leaving investors to wait on tenterhooks.

Meanwhile, another futures trading platform called ErisX has also been affected by the inactivity of the CFTC. Thomas Chippas, the CEO of ErisX, has indicated that the platform is still being actively developed during the shutdown. ErisX will re-engage with the CFTC when the shutdown ends, and like Bakkt, it has a good chance of gaining approval.

Joint ETF Proposal Caught in the Crossfire

Trading platforms are not the only efforts that have been stalled by the shutdown: ETFs, or exchange-traded funds, are also under threat. So far, no Bitcoin ETFs have been approved by regulators, and applications have been continuously rejected over the course of 2018. At the outset of the shutdown, a new joint-effort proposal from VanEck, CBOE, and SolidX was awaiting approval. On January 22nd, CBOE announced that it is withdrawing its application.

This ETF proposal was being examined by the Securities and Exchange Commission (SEC), which unlike the CFTC, works under legally-enforced deadlines. This posed a serious threat: if the SEC did not handle the ETF proposal by February 27, the proposal would expire. This initially provoked optimism, as proposals that meet their deadline technically ought to be approved under current law. It now seems that CBOE and VanEck have voluntarily withdrawn their proposal. Although they intend to continue seeking approval after the shutdown ends, it's not clear when the process will be resumed.

From the outset, legal experts stated that an automatic approval probably wouldn't happen―hardly a surprise, given the SEC’s dedication to rejecting ETFs in the past. Unfortunately, the most straightforward way for the SEC to handle the proposal during the shutdown was to simply deny it. The CBOE announcement flies in the face of prior optimism that this would be the ETF application that made it through.

Effects On the Broader Crypto World

As with any major disruption, there is one question on everyone’s mind: how will the market be affected? The direct effects of the government shutdown are hard to pinpoint, but it seems likely that complications around major projects will trigger major crypto sell-offs. In fact, some sources are suggesting that the shutdown is already influencing the market in this way.

On the other hand, it is possible that already functional derivatives platforms, such as Huobi DM or dYdX, could gain attention during the shutdown. These platforms are not entirely interchangeable with the projects affected by the shutdown and are of little interest to traditional investors. However, they could attract the attention of crypto investors in light of the current delays.

Conclusion

Although the government shutdown is no cause for celebration, the regulatory decisions and events that occurred prior to the shutdown were not entirely positive, either. Things may have been heading in the right direction for futures platforms and ETFs, but there has never been a guarantee that any proposal would have been approved.

Furthermore, if one of these projects fails, it is almost certain that another will take its place. The crypto world has never been afraid of obstacles or delays, and ETFs have been particularly persistent in the face of rejection. The government shutdown is unlikely to cause any initiative to give up now.