Don’t tell Satoshi Nakamoto, but it seems that a Federal Agency in the US could be behind the recent rise in bitcoin prices. The SEC, the agency responsible for enforcing rules and regulations on the securities market, is set to decide on the Winklevoss ETF proposal in a matter of weeks. Apparently, the run up to the decision has traders buying a considerable amount of bitcoin, and prices are soaring.
SEC Decision on Bitcoin ETF brings Irrationality to Cryptocurrency Markets
The fact that the run up to this SEC decision is playing such a big role in cryptocurrency markets, is ironic. After all, bitcoin was designed as an answer to market irrationality and the kind speculative moves that brought the world economy to its knees during 2008-09. Nevertheless it seems that bitcoin is now the prisoner of its own success and a subject of classical market speculation. More and more people want to invest in bitcoin, so an ETF could well be the most appealing instrument to bring the asset to those who are too scared to invest in it directly. That is quite an irrational notion, almost as irrational as the speculation behind these sudden price hikes.
Speculation Overrides the Chinese Effect
It is even more irrational to think that an ETF based on an asset that has such a deep Chinese footprint, will be a good idea for investors who are reluctant to hold the asset itself in part because of their lack of trust in it. Despite all the irrationality, it seems that expectations over the SEC decision are driving bitcoin prices towards their highest point in 2017 so far. The fact that the Chinese authorities went out of their way to restrain bitcoin transactions through the biggest exchanges in China when the cryptocurrency hit its 2017 high, is not deterring speculators.
SEC vs China
This small bitcoin rush shows that price stability could suffer if the SEC approves the Winklevoss ETF. The price is expected to rise as more investors pour into this ETF, which may well trigger another show down between authorities and exchanges in China. That would have a downward pressure on bitcoin prices, which will serve to increase price volatility and fuel investor irrationality.
Merit should be driving Bitcoin Prices
Bitcoin has shown it has the resilience necessary to thrive in a high volatility environment. It certainly has the ability to survive any further crack downs in China as well as any kind of SEC decision, but true bitcoin believers would rather have merit driving bitcoin prices. In a way, bitcoin’s success up to this point is largely due to its ability to circumvent government decisions and market irrationality. Now with this decision coming up, markets will test bitcoin’s resilience in a whole different manner. Hopefully it will pass the test without having a negative effect on the wealth of common people who are true bitcoin believers. In the meantime bitcoin holders should be ready for increased volatility as the uncertainty around the SEC decision settles.