Let’s not forget the hard fork that spawned Ethereum Classic in July 2016 amid all the rumors of the looming Bitcoin hard fork. The split between Ethereum and Ethereum Classic was based on differences in immutability.
Many people hadn’t thought that ETC would survive that long or would still be a factor to be reckoned with nearly two years after the hard fork. At the time of writing this article, ETC has grown to become the fourth largest currency traded by volume on the Poloniex exchange. In addition, the value has more than doubled since March 2017.
So would ETC be an interesting investment? How about a fund investing in ETC, is the time for such a fund?
Grayscale’s ETC Fund
Grayscale’s Ethereum (ETC) Investment Trust (EIT) will allow investors to benefit from price movements in ETC. In an investment thesis published by the company, they explain in great detail points about the investability of ETC.
The major emphasis in the paper is on ETC’s immutability, making it a medium similar to Bitcoin, sometimes referred to as digital gold.
Grayscale says in her thesis:
“We have identified two possible drivers of Alpha for Ethereum Classic and ETC. First, ETC possesses similar store of value properties to precious metals and Bitcoin, giving it credibility as an inflation hedge over long-term investment horizons.” Secondary emphasis is placed on the fact that ETC has real world applications. They explain: “Second, as a digital token that runs Ethereum Classic smart contracts, ETC can become the scarce commodity that powers a universally scalable Internet of Things.”
Scarcity as a driver of value appreciation?
Ethereum Classic has introduced a new monetary policy that reduces the block reward by 20 percent at block number 5,000,000 and proposes to reduce it by 20 percent every 5,000,000 blocks.
It is not expected that the total supply of ETC will be limited to ETC 210 million, but will not exceed ETC 230 million.
This type of “scarcity” is similar to Bitcoin, but unlike Ether (ETH), whose output grows by a fixed amount every year.
Grayscale is proceeding with the launch of its Ethereum (ETC) Investment Trust now that there is clarity on the monetary policy issue, according to Barry Silbert, founder and CEO of Digital Currency Group, which owns Grayscale.
Do you have an appetite for an ETC fund?
Cryptocurrency funds are coming into vogue. Grayscale has plans for the Bitcoin Investment Trust (BIT), whose registration statement has been filed with the Securities and Exchange Commission (SEC).
Then, in March 2017, there was an attempt by the Winklevoss brothers to get their Bitcoin ETC approved by the SEC. The rejection of this ETF also caused bitcoin prices to drop. However, unlike the Winklevoss Bitcoin ETF or Grayscale’s own BIT, the EIT is a private investment vehicle.
Grayscale CEO Barry Silbert revealed in an email to Cointelegraph:
“We may one day try to have the ETC fund publicly listed on the OTCQX market like the Bitcoin Investment Trust, but at launch it will not be publicly traded.”
Regarding what type of investor would be interested in EIT, Barry writes: “We believe there is significant demand from investors to invest in vehicles that handle the purchase and custody of digital currencies and see interest growing ETC from these types of investors.”
Official approval is crucial
Mainstream investment vehicles that allow people to invest in cryptocurrencies can seem like a shot in the arm to these markets. These vehicles, when publicly traded, will open the doors for investment in cryptocurrencies by pension funds, private and public entities, and of course members of the public.
However, the key lies in securing regulatory approval. In rejecting the Winklevoss ETF, the SEC noted:
“The Commission believes that in order to comply with this standard, an exchange listing and trading shares of Commodity Trust Exchange Traded Products (“ETPs”) must meet two requirements, in addition to other applicable requirements, which are critical in this context Object. First, the exchange must have surveillance-sharing arrangements in place with major markets for trading the underlying commodity or derivatives on that commodity. And second, these markets need to be regulated.”
The SEC will not approve cryptocurrency funds because the markets are said to be unregulated and cryptocurrencies like ETC believe code is law. Then it is important to find a reasonable middle ground.
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