Over the years there has been plenty of noise around the launch of a Bitcoin ETF (exchange traded fund) which would give investors and traders access to the crypto in mainstream financial markets.
On numerous occasions the U.S. Securities and Exchange Commission (SEC) has denied attempts at the launch of such a product. Gaining SEC approval is proving to be the major hurdle to its introduction. The regulator has rejected several applications since 2017. One of the most often cited reasons is due to bitcoin and other digital assets being volatile and open to market manipulation.
Many investors remain hopeful the crypto market will eventually see a Bitcoin ETF approval, although regulators need more time to get their heads around the concept and ensure such a product will not harm investors. Many pro Bitcoiners see an ETF as the ultimate alternative asset as it could mean potential high returns with low correlations and intraday liquidity.
There have been a number of major reasons for the rejection of ETF applications and another was the need and plan to create a reference price. This would be a fixed price at which digital assets would be valued and benchmarked.
In one Bitcoin ETF rejection note, the SEC wrote on March 28 that “it does not find the proposal to be consistent with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices.”
Currently there are no U.S. bitcoin ETFs available today, but there is one digital currency investment product regulated by the SEC available in the U.S. and that is the Grayscale Bitcoin Trust (GBTC). Although the Grayscale products are not ETFs, they do have a similar structure.
On August 6, this year, Grayscale Investments filed Form 10 with the SEC on behalf of Grayscale Ethereum Trust. If this application is approved it would make the Grayscale Ethereum Trust the second-ever digital currency investment product regulated by the SEC, and subject to the same reporting standards as ETFs and stocks like SPDR Gold Trust. In terms of crypto products it seems Grayscale is leading the way.
The company reported this past quarter alone (2Q20), it has seen the average weekly investment into the Grayscale Ethereum Trust hit $10.4 million, amounting to record quarterly inflows into the Trust to the tune of $135.2 million. In fact, demand for Grayscale Ethereum Trust accounted for almost 15% of total inflows into Grayscale products during its biggest quarter yet.
The SEC approval for an ETF is still a long way away and the acceptance from the SEC would be a major validation.
In February 2020, the SEC rejected an application from New York-based Wilshire Phoenix, which had first applied for the ETF last summer with NYSE Arca. The regulator stated it is not proven the bitcoin market is sufficiently resistant to market manipulation.
The SEC’s main concern and hesitancy to issue approval for a cryptocurrency ETF primarily centre on issues of market manipulation, surveillance and infrastructure. Until these concerns have been addressed it could be some time before there is a market structure which is able to withstand such a volatile product.
In a recent interview with Morgan Creek’s Anthony Pompliano, Grayscale Investments managing director, Michael Sonnenshein said, “We think a Bitcoin ETF is a matter of when not a matter of if…The regulators have done a fantastic job of staying ahead of the curve on the digital currency asset class as a whole.”
Sonnenshein has also described the clarity around the U.S. regulatory body, adding that, “There are in fact ways to work with regulators on the asset class within existing frameworks but they’re just not ready to approve an ETF yet,” adds Sonnenshein.
Switzerland Ahead On Product Launches
One country which is ahead of the curve when it comes to the launch of a cryptocurrency exchange traded product (ETP) is Switzerland's Zurich-based SIX Exchange which listed Amun AG’s products in 2018. Amun the Swiss issuer of crypto ETPs has since changed the name of the ETP line of products to 21Shares AG. The ETP launches have been for the risk taking type of investor hungry crypto asset class.
For many investors, the big question is when, but certainly not if, a crypto ETF will be launched? Although the investor demand is there and investors are keen to see the launch of a Bitcoin ETF – it seems at this stage of the cycle Bitcoin products are still evolving.
The above in no way constitutes trading advice. Neither the author nor this website holds any liability or responsibility for any financial win or loss or legal proceedings that result from trading, investing or gambling at any parties referenced on this website.