When will Bitcoin exchange traded funds (ETFs) be approved? In March this year the Winklevoss Twins Bitcoin ETF application was rejected by the Securities and Exchange Commission (SEC). Then both investment management firm VanEck and ETF specialists Rex Shares withdrew filings with the SEC to launch ETFs. The SEC has argued that these firms can not file a Bitcoin ETF until the underlying futures contracts are already in place.
This very sudden withdrawal of proposals for recent Bitcoin ETFs has left some questioning the outlook for cryptocurrency related ETFs? Despite the rejection. the Winklevoss twins are not giving up after their very public ETF setback. and have reapplied for approval — with the SEC agreeing to take another look.
Phil Bak, CEO of ACSI Funds and former head of ETF listings at NYSE, says that the problem the providers face is simply an issue of timing. “There is no precedent for the SEC approving ETFs based on upcoming futures contracts,” he says, “so it is not a surprise to see the SEC ask for the filings to be withdrawn. The issuers wanted to get in the queue for approval as soon as possible.” Once Bitcoin futures are approved for trading, Bak says, “an ETF tracking those futures has a significantly higher likelihood of approval than the spot based products that were rejected last year.”
Eddy Travia, CEO of Coinsilium (a company that funds and manages the development of incipient blockchain technology companies) says possible reasons behind the SEC’s refusal to approve ETFs “could be some issues around the recognition and classification of bitcoin as a specific asset class and the provenance of the coins.”
Travia says both issues can be solved and that cryptocurrencies are a “de facto new asset class” The demand from investors, he says, both at the retail and institutional levels will soon grow to a level that “regulators will no longer be able to postpone the ineluctable approval and trading of crypto instruments on regulated financial markets.”
“ it’s only a matter of time as the industry matures and more retail investors openly request ways to gain exposure to bitcoin’s price.”
— Aaron Lasher, CMO, Bread Wallet
Aaron Lasher, CMO at Bitcoin portfolio provider Bread Wallet, says it seemed like a sure thing that the SEC would approve the Winklevoss ETF and the disapproval was clearly unexpected. As to when the situation will turn says “the only people who can answer this question are the decision makers at the SEC. But I do believe that it’s only a matter of time as the industry matures and more retail investors openly request ways to gain exposure to bitcoin’s price.”
So what’s holding the U.S. back?
Lasher says the SEC cited at least two reasons to disapprove the Winklevoss ETF. First, too much of the trading activity takes place outside the US, adding a certain amount of risk that the SEC cannot properly account for. Second, the ability and propensity for bitcoin to fork from time to time adds complexity to the ETF’s composition. “In my opinion,” he says, “these are minor and temporary objections that will eventually be overwhelmed by the market’s appetite for a traditional bitcoin investment vehicle.”
Many industry experts think a Bitcoin ETF will not be approved anytime soon, however. BlackRock’s Mark Wiedman, global head of iShares and index investments says “I don’t quite get the point of a Bitcoin ETF in any case, because we’re talking about…trading products that are difficult to access.”
Ryan Radloff, principal at CoinShares agrees with Wiedman’s sentiment, arguing that investors could just as easily access cryptocurrencies through specific markets instead of looking for a round-about-way in an ETF wrapper. “Longterm, Mr Wiedman could be right — it may be very easy for retail and institutional investors to buy and hold bitcoin and cryptocurrencies. But, short-term, the infrastructure is limited, especially for institutional and professional investors.”