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Bitcoin Ruled Commodity; Palladium ETF Shines

5 min read
First published on October 01, 2018, 02:21:06 PM EDT By ETF.com

The long debate over what bitcoin actually is from a regulatory perspective—a currency, a commodity or a security—is finally over.

The U.S. Commodity Futures Trading Commission (CFTC) officially called bitcoin a commodity, which means it’s essentially claiming it under its umbrella.

Oversight has long been one of the issues the Securities and Exchange Commission has held against attempts at packaging bitcoin in ETF wrappers. The SEC has thus far only rejected bitcoin ETF plans—it has never said yes to any.

Just last month, the SEC turned down nine different bitcoin ETF proposals citing concerns about manipulation and about exchanges’ ability—or lack thereof—to prevent “fraudulent and manipulative acts and practices.” Earlier this year, it said no to the Winklevoss brothers’ bitcoin ETF plans as well.

In theory, as a commodity, from a regulatory perspective, bitcoin could be treated like gold or oil, and have ETFs built around it much like the physical commodity SPDR Gold Trust (GLD) or the futures-based commodity ETF, the U.S. Oil Fund (USO).

Despite the ruling, a bitcoin ETF appears to be far off into the future as of now.

Palladium ETF Shines

In the world of precious metals, a big story is unfolding, unnoticed by most investors—even most commodity hounds.

Palladium, the industrial metal in precious metal’s clothing, is quietly rallying, its prices hovering near all-time highs.

Yet investors have spurned the metal. Holdings in global palladium exchange-traded products are near nine-year lows, while the $141 million ETFS Physical Palladium Shares ETF (PALL), the market’s only palladium ETF, has actually seen outflows year-to-date of $91 million.

The big question is, why?

Precious Metals Workhorse

Unlike gold, which has limited industrial use, palladium is a workhorse of a precious metal. It’s used for a very specific industrial purpose: to make more emission-friendly catalytic converters for automobiles.

As cars increasingly go greener—China, in particular, has aggressive emission reduction targets it plans to meet by 2020—automakers will need to produce more and more catalytic converters.

In addition, the increasing occurrence of climate-related disasters—wildfires, earthquakes, hurricanes and so on—has spurred consumer demand for new automobiles to replace ones that were lost or destroyed.

That, too, has fueled demand for new catalytic converters and, in turn, palladium.

Prices Rise On Tight Supply

On Thursday, spot palladium traded at $1,074.62/oz, or just 6% off its all-time high of $1,139.68/oz. Naturally, PALL has rallied, too, rising 14.4% in the past 30 days.

Over the past month, PALL has proved the second-best-performing ETF, second only to the marijuana-tracking ETFMG Alternative Harvest ETF (MJ) (read: “ETF Of The Week: Marijuana Stocks Surge Higher“).

Drew Voros can be reached at dvoros@etf.com

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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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