Bitcoin ETF 2019: Anticipating Institutional Cryptocurrency Investments
Regulators have been snoozing during the slow rise of crypto, only to wake up in shock. At the end of 2017 the market cap jumped to $800 billion dollars, questionable ICOs were selling tokens far and wide, while investors lost fortunes to hackers in the Mt.Gox and DAO hack. It was time for the SEC to get involved, tame cryptocurrencies, and provide a framework for investments.
On the other hand, institutional investors have been on the edge of their seats waiting for Bitcoin-based exchange-traded funds. Cryptocurrencies can provide an incredible investment opportunity with rising prices, great new technology, yet opening the door to a whole new world of risks and concerns. The market is eagerly waiting- ETFs would open a brand new door in the history of cryptocurrencies.
But will it happen anytime soon?
SEC and the Bitcoin ETF
In the past few years, the SEC received over 10 proposals for crypto investment funds. All of these were refused by the 4-member SEC team, as according to them these failed to address several major hurdles towards crypto adoption.
The SEC has a number of concerns about the ETFs.
According to the official staff letter, published after the rejection of the Winklevoss ETF, there are 5 major areas of concern with crypto-based investment products: valuation, liquidity, custody, arbitrage, potential manipulation, and other risks.
Moreover, the SEC has a 240-day deadline towards examining and deciding about Bitcoin exchange-traded products. This means major delays and indicates that even the proposals filed at the beginning of 2019 will not see a verdict until the end of 2019.
Despite the major concerns, several SEC commissioners are hopeful towards accepting a crypto ETF soon.
Robert J. Jackson, an SEC commissioner in a leaked interview with the US Capitol outlet Roll Call, has expressed high hopes towards accepting a Bitcoin ETP soon.
“Eventually, do I think someone will satisfy the standards we’ve laid out there? I hope so, yes, and I think so,” he told the publication.
Another SEC commissioner Hester Pierce, nicknamed the SEC’s CryptoMom, in her latest speech shows that their team is still pushing hard on a Bitcoin ETF approval, and a crypto-friendly token sale regulation. The subject of her speech was “Protecting the Public While Fostering Innovation and Entrepreneurship: First Principles of Optimal Regulation” and hinted some critical words to her fellow commissioners and hopeful comments to crypto-enthusiasts.
“There is also great interest in exchange-traded products based on bitcoin or other cryptocurrencies. As I have mentioned in the past, I am concerned that our approach with respect to such products borders on merit-based regulation, which means that we are substituting our own judgment for that of potential investors in these products. We rightfully fault investors for jumping blindly at anything labeled crypto, but at times we seem to be equally impulsive in running away from anything labeled crypto. We owe it to investors to be careful, but we also owe it to them not to define their investment universe with our preferences.”
There is a lot to consider for the SEC: the novelty of this technology puts both them and investors in a new world of possibilities and they need to make sure the proposals will provide a fairly regulated opportunity. While the process is definitely lengthy, the positive signs can indicate that the SEC will be ready to give the green light to the right candidate.
Who is Racing for a Bitcoin ETF?
There are several parties interested in launching the Bitcoin ETF and submitting their proposals to the SEC trying to overcome their concerns. Without a complete listing here are the major players:
The Bitwise Asset Management and crypto-exchange has filed this January the proposal for a new Bitcoin ETF. The fund would track the Bitwise Bitcoin Total Return Index, which measures the value of bitcoin plus any meaningful hard forks.
Their index for the valuation would be underpinned by spot prices from many exchanges, which would represent the majority of currently verifiable bitcoin trading.
Their proposal differs on 2 key points: they base their fund on physically settled futures contracts, instead of the cash-settled contracts used in previous proposals. They will also store the actual bitcoins in the trust with regulated third-party custodians.
CBOE, SolidX and VanEck
The 3 joint companies have withdrawn their bitcoin ETF proposal on 22nd January 2019, only to resubmit it a few days later on January 31st. The trio now competes for the approval of their ETF with Bitwise.
Their proposals are targeting 2 different stock exchanges- CBOE for and NYSE Arca- which could drive potential bitcoin ETF investors towards one or the other exchange.
The Bitwise proposal is complete with answers to the previous questions towards bitcoin ETF funds. The trio is looking forward to discussing their proposal with the SEC, and hopefully adoption by the end of this year.
The Reality Shares Blockforce Global Currency Strategy ETF was proposed to the SEC on 11 February 2019. The proposal was submitted by Reality Shares, the firm behind 2 blockchain exchange-traded funds.
The filing indicates, that the ETF does not only consider bitcoin but other cryptocurrencies as well: it would include “high-quality, short-term sovereign debt instruments listed for trading on U.S. exchanges and denominated in U.S. dollar, British pounds sterling, euro, Swiss francs, and Japanese yen,” as well as bitcoin futures, money market mutual funds and/or other cash equivalents,”.
The proposal’s exposure to bitcoin comes via futures trade on CBOE or CME, and the fund would require active management.
The Winklevoss twins have been long involved in the world of cryptocurrencies, and are major supporters of mass adoption. They have launched their own crypto exchange called Gemini, and a splashy marketing campaign titled “Revolution Needs Rules” aimed to both provide a slight hint to the SEC and promote their platform.
Their Bitcoin ETF proposal was dismissed in July 2018, and while right now they do not plan to submit a new proposal, they are certainly outspoken about the need for regulation. Rightfully so, as even admitted by the SEC, current regulations are not prepared for novel technologies.
The Winklevoss brothers are likely waiting for the set of novel regulations to get realized, before jumping in with their proposal. At the moment they chose to explore another lucrative area of crypto with stablecoins.
Race Towards the Finish Line
The tension is high as the market senses positive signs towards moving to a bitcoin ETF. Both current and potential crypto investors have been eagerly waiting for the doors of crypto to open to institutional investors.
However, there is no guarantee for a deadline, and the possibility of crypto investment funds depends both on the firms bringing a solution to the SEC’s concerns, and the SEC’s openness towards this novel financial asset.
DisclaimerThe writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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