Bitcoin has bounced back off its lows after getting absolutely smashed earlier this year. After nearly topping  $20,000 in 2017, the price of bitcoin fell back to $7,000 before rebounding to about $11,000.

And, wouldn’t you know it, high-flying prices and insane volatility have caught the interest of regulators.

That’s a good thing.

Wait, wait. Hear me out.

I’m pretty libertarian about things, which means I’m not usually a big fan of regulation. But a space like bitcoin is ripe for ordinary folks getting taken advantage of. You can see it coming a mile away. Recently, the Securities and Exchange Commission (SEC) issued dozens of subpoenas to crypto-issuers and are warning that these offering should be treated like securities.

I have no doubt there are illegal securities offerings. The market is growing exponentially, with 50% growth over all of 2017 in just the first two months of the year. With bitcoin looking like the Wild West, I keep picturing a guy with a desk, a fax machine, and a pager lighting up the phones to sell some sort of crypto-related investment. Formerly, these people were junior gold miner prospectors.

It always ends badly.

With the request for information, the regulators are clearly trying to get ahead of the curve and nip the illegal activity in the bud. This might also make life difficult for legitimate operators, but, hopefully, that’ll only be short-lived. Once the smoke clears, legitimate companies have a better chance to prosper without being dragged through the mud with the frauds.

The other area where the SEC has flexed its muscle is in the exchange-traded fund (ETF) space. The SEC had blocked bitcoin ETFs in the past, but once futures started trading on bitcoin, several ETF sponsors filed to list their funds on exchanges. They could price the ETF based on the futures contracts traded on bitcoin. Previously, it would’ve been impossible for an ETF based on bitcoin to function properly.

I have no doubt that these bitcoin ETFs would’ve garnered billions of dollars in assets quickly after their respective launches. These would be the most successful ETF launches in recent history, if not all-time. What’s more is that if normal bitcoin volatility, which is like a death-defying roller-coaster ride, didn’t whet your appetite, you’d also have been able to purchase ETFs with added leverage designed to juice the returns.

Fortunately, regulators stepped in and expressed deep concern with how these ETFs would function. In short order, the ETF sponsors withdrew their filings. Tons of money in future management fees also went up in smoke.

Our last Hidden Profits stock pick is engaged in blockchain technology. But, instead of changing its name to Sock Puppet Blockchain to capitalize on a trend, it’s actually operating real blockchain businesses. I remain quite skeptical on the currencies themselves, but blockchain technology is real and here to stay.

Even if I’m wrong and bitcoin goes to $100,000, bigger gains will be made in the winners of the blockchain battle.

John Del Vecchio
Editor, Hidden Profits

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John Del Vecchio
In 2007, John Del Vecchio managed a short only portfolio for Ranger Alternatives, L.P. which was later converted into the AdvisorShares Ranger Equity Bear ETF in 2011. Mr. Del Vecchio also launched an earnings quality index used for the Forensic Accounting ETF. He is the co-author of What's Behind the Numbers? A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio. Previously, he worked for renowned forensic accountant Dr. Howard Schilit, as well as short seller David Tice.