Needham & Company has put together a report on the prospects of the Winklevoss twins’ proposed bitcoin ETF, and it comes with both positive and negative news for the digital bearer asset.Spencer Bogart, a research analyst at Needham & Company, put together the report in response to the questions the company had been receiving from their clients regarding a possible bitcoin ETF.According to the report, the positive effect that a bitcoin ETF would have on the price of bitcoin is vastly underappreciated, and the probability of approval is drastically overestimated within the industry.An ETF’s Effect on the Bitcoin Price Needham’s report describes two reasons as to why an ETF would have a profoundly positive impact on the bitcoin price.For one, the report estimates the listing of a bitcoin ETF on the Bats exchange would see $300 million worth of assets flow into it within the first week, an estimate Needham claims to be conservative.“While bitcoin liquidity has improved dramatically in recent years — and average daily trading volume now resembles that of the average security in the S&P midcap 400 — it would be hard for the ETF’s authorized participants to acquire $300M worth of bitcoin without significantly pushing price up,” notes the report.

Needham also believes the approval of a bitcoin ETF would change the overall perception of the regulatory risk surrounding the asset.“In terms of perception, the SEC approving a bitcoin ETF would add legitimacy to bitcoin in the eyes of investors — this alone is no small matter considering that many still associate bitcoin strictly with illicit activities,” says the report.In addition to the improved perception of bitcoin that comes with the SEC’s stamp of approval, Needham also believes a mainstream investment vehicle for bitcoin would increase the percentage of bitcoin holders in the total population.In their view, this weakens the political appetite for enacting onerous regulation.The report states a belief that the technical constraints of sourcing the bitcoin to meet the demands of an ETF and the improved perception of bitcoin would have roughly equal impacts on the price.But What About the Prospects of Approval?According to their report, Needham puts the chances of a bitcoin ETF approval in 2017 at below 25 percent.

The report states that this is in contrast to the beliefs held by many people whom Needham has spoken to in the Bitcoin industry.“In terms of incentives, the SEC is tasked with protecting consumers and, in this regard, we don’t see much upside to approval for the individuals tasked with making this decision — even if the ETF is a huge success (we think it would be),” the report explains.“In contrast, if a bitcoin ETF were approved and something went very wrong it would likely reflect poorly on the SEC.” Due to the nascent nature of the technology as well as the fear, uncertainty and doubt surrounding it, Needham thinks approval of the bitcoin ETF will be too risky a proposition for individuals working at the SEC at this time.One caveat to Needham’s read on the situation is that the ETF will be approved if the SEC takes no action.In their view, this may be a more politically acceptable approach from the perspective of the individuals responsible for making this decision.

“That said, we understand it is extremely rare for a proposed rule change to make it to this stage — typically either the Commission makes a decision prior to the deadline or the original sponsors of the rule change withdraw the request,” the report adds.Updated note: The research analyst and research associate who wrote the report covered in this article received compensation via Needham & Company's revenues, including investment banking revenues for Bitcoin Investment Trust, which is a competitor to the Winklevoss bitcoin ETF.c7 bitcoinWilly Woo is an entrepreneur, angel investor, derivatives trader and cryptocurrency enthusiast.bitcoin reloads reviewIn this guest feature, Woo explores how the bitcoin market might react if a long-awaited ETF was approved and millions in new capital were injected into the market overnight.litecoin news reddit

This infographic of bitcoin's price is something I've been pondering today.It tells bitcoin's often dramatic price story in fundamental trend lines that abstract away some serious doses of speculative activity.There's a lot in this chart, so lets break it down: In late 2015 through to May 2016, we saw a three cats and a moon consolidation pattern play out over six months after a multi-level marketing (MMM) pyramid scheme took bitcoin price action through some exciting times.bitcoin kaufen beste seiteBy early June 2016, we saw a speculative bubble (marked in green above) as the market sought to price in the upcoming block reward halving event.huong dan dao bitcoinThis was to be the second halving event, slashing payout and therefore the supply of new bitcoins from 25 BTC every 10 minutes to… well, exactly half to 12.5 BTC.litecoin volume

Leading up to this, many people were afraid miners would exit (taking their protective hashing power with them), and that the block processing would slow and the price could crash.This did not happen.What happened was simply that the markets saw less sell-side pressure from miners who had fewer newly minted coins to sell.(The blue trend shows the steeper rate of price appreciation this had on the markets.)Finally, what we may be seeing from Q4 2016 to present is the market undergoing a much larger and longer speculative phase for the upcoming bitcoin ETF decision.If approved, hundreds of millions at a minimum are expected to be poured into bitcoin.Understandably, the blue-shaded area in our infographic would then be drawn out.If this story is fundamentally correct, the picture it paints is quite useful.Methodology Using this data, we can deduce the impact of a controlled reduction in bitcoin supply on price, and because of this, we can use it to extrapolate changes as a result of new capital inflow.

The diagram above traces two price trajectories, and they etch out the price impact of two monetary dilution policies.Every 10 minutes, blue supplies 12.5 BTC onto the markets, while green supplies 25 BTC.The difference between the two trend lines at any point in time will give you the price impact from their differences in supply.The difference between the two trend lines at any point in time will give you the “fair value” price impact from their differences in supply.I say “fair value” as in reality bubble mania would take hold and we’d see a party session above the new baseline and probably another very long three cats and a moon consolidation.First, a note about the accuracy of this method.As any chartist and trader can attest, placement of the trend lines is an art, so bear in mind the actual results are subject to significant errors.Nevertheless, let's see if the results make any sense… Results and comments Fundamental price The fundamental baseline price of bitcoin, without any speculation on the day of the ETF decision came to $900.

Fundamental ROI Our trend lines indicate bitcoin's return on investment made a step change from 97%pa to 188%pa after the block halving event, which saw monetary inflation reduce from 10% to 4%.ETF price impact and market capitalisations Running through different capital injection scenarios, we have predictions of between $1,090 for a $300m capital injection to $3,200 for a $2bn FOMO stampede.In comparative terms, gold ETFs account for 0.6% of gold market cap while a single $300m ETF inflow would account for 2% of bitcoin market cap.Current market speculation Needham and Company published a report early this year estimating that an ETF approval was likely below 25%.However, at the time of writing, the newly released BitMex EFT prediction market is expecting a 33% chance.We've seen speculative bitcoin pricing in the range of $1,050-$1,150 and success probabilities of 25% to 33%, figures that are in line with a $500m-$1bn capital injection from ETFs.In such a scenario, we would see bitcoin's market cap swell to $20bn-28bn.

What does this mean in terms of March 2017 price action?When the results become known on 11th March, the markets will respond sharply due to speculative pricing*.Let's say the price of bitcoin is $1,090 leading up to the announcement.An approval decision could see an immediate $380-$570 price climb**, conversely with a negative decision slash the $190 speculative premium towards the $900 baseline.How much would depend on sentiments toward yet another shot at ETF approval.* The short-term price would be driven by speculators, as an actual ETF fund would source the majority of bitcoins from over-the-counter markets.This means it would take some time before the impacts of reduced supply reached the bitcoin exchange markets.** At 25% chance price should calculate as $900+$190*4 whereas at 33% probability the calculation would be $900+$190*3 How does this compare to other reports?Needham and Company <25% chance of success $300m capital inject in the first week No price target.

At 25% chance and a speculative pricing of $1100 pre-decision, my model would predict $1bn of longer-term capital injection and a fundamental valuation target of $1700.This is within ballpark.Seeking Alpha 35% chance of success Price target $3,678 Probability adjusted price $1,645.If probability adjusted price is in fact $1,645, my model would predict a fair value price target of $3,125 (and $2.2bn of ETF capital).Given their target likely accounts for speculative overshoots that always plague price mania, the two are moderately in agreement.In this case the speculative overshoot would need to be 18%.Seeking Alpha comment the markets are undervaluing bitcoin by a wild margin (67% at the time of the report).This piece is not intended to provide, and should not be taken as, investment advice.Visit Woo's blog to read more cryptocurrency markets coverage.Gold bull images via Shutterstock The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies.