Bitcoin ETF | Why A Bitcoin ETF Changes Everything
On Tuesday 3rd August the head of the SEC gave the clearest signal yet that they are readying for the approval of the growing list of Bitcoin ETF products awaiting regulatory approval.
“I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded Bitcoin futures”Gary Gensler @ Aspen Security Forum
In this article we explore the current situation with Bitcoin ETF’s in the United States and abroad. I’ll go through all the current applications awaiting SEC approval before considering the implications of a Bitcoin ETF on the worlds largest stock exchanges.
- Bitcoin ETF Video
- What Is A Bitcoin ETF
- Why A US Bitcoin ETF Is Important?
- Bitcoin ETF’s In Canada & Brazil
- GBTC Grayscale Bitcoin Trust
- List Of Bitcoin ETFs Awaiting SEC Approval
- When Will A Bitcoin ETF Be Approved?
- What Happens After SEC Approval
Bitcoin ETF | Expected SEC Approval 2022
What Is A Bitcoin ETF
An ETF is an exchange traded fund. ETF’s are used in traditional finance as investment vehicles to gain eposure to asset classes such as an index of stocks or a commodity such as gold.
A fund manager will purchase the underlying assets while making the ETF available to trade on a stock exchange.
There have been many proposals for Bitcoin ETF’s in the US however the SEC is stalling on giving approval due to concerns about “volatility and market maturity”.
Why A US Bitcoin ETF Is Important?
When Bitcoin ETF’s are approved in the US it will enable Bitcoin to be traded on the worlds largest stock exchange. This will enable a fiat on/off ramp for traditional finance and provide a new tool for hedge funds, family offices and prop traders.
Anyone with a broker account will be able to allocate capital to cryptocurrency without handling private keys or digital wallets.
Bitcoin ETF’s In Canada & Brazil
In February 2021 Canada approved the following Bitcoin ETF’s which have proved popular however they don’t have the same reach as US markets.
- Purpose Bitcoin ETF (ticker: BTCC)
- Evolve Bitcoin ETF ( ticker: EBIT)
- CI Galaxy Bitcoin ETF (ticker: BTCX)
Brazil also has a Bitcoin ETF launched by QR Capital in June 2021.
With global markets moving forwards it should, in theory, be adding pressure to the SEC to act.
GBTC Grayscale Bitcoin Trust
The drama surrounding Grayscale’s Bitcoin Trust deserves an article of it’s own. GBTC is an open-ended private trust that holds around 3% of Bitcoin’s circulating supply worth $21 billion USD.
The fund is only available to accredited investors and the minimum buy-in is $50k USD. Grayscale charges a 2.0% management fee.
In the past GBTC has done a pretty poor job of tracking the underlying price of Bitcoin. In December 2020 it was trading at a 40% premium before collapsing to a 11% discount on the underlying spot price by March 2021. This was due to the drying up of an arbitrage trade and increased competition from Canadian ETF’s causing a rush for the exits.
Grayscale have made no secret about wanting to convert the trust to an ETF as soon as possible. They even went as far as to purchase a major stake in ClearShares Piton Intermediate Fixed Income ETF a bond fund with the ticker BTC.
“The story is no longer if there’s going to be a bitcoin ETF but when there’s going to be a bitcoin ETF”David LaValle – Global head of ETFs @ Grayscale
List Of Bitcoin ETFs Awaiting SEC Approval
|VanEck Bitcoin Trust||CBOE||December 2020||Tracks hourly BTC VWAP across multiple exchanges|
|Valkyrie Bitcoin Fund||NYSE||January 2021||Cash create/redeem like system for authorised participants|
|NYDIG Bitcoin ETF||NYSE||February 2021||Actively managed ETF|
|WisdomTree Bitcoin Trust||CBOE||March 2021||WisdomTree has blockchain based products already in Europe|
|First Trust SkyBridge Bitcoin ETF Trust||NYSE||March 2021||Tracks GAAP Bitcoin valuation|
|Wise Origin Bitcoin Trust||CBOE||March 2021||From Fidelity. Tracks the Fidelity Bitcoin Index, which itself tracks spot markets|
|Kryptoin Bitcoin ETF Trust||CBOE||April 2021||Gemini to provide custodian services. Fund manager Jason Toussaint, former CEO of SPDR Gold Trust ETF|
|Galaxy Bitcoin ETF||NYSE||April 2021||Tracks Bloomberg Galaxy Bitcoin index|
|Ark 21Shares Bitcoin ETF||CBOE||June 2021||Coinbase to be custodian. 0.95% quoted management fee.|
|Global X Bitcoin Trust||CBOE||July 2021||Trust will hold Bitcoin. Tracks GAAP|
|Invesco Bitcoin Strategy ETF||NYSE||August 2021||Indirect exposure via CME futures, GBTC & Canadian ETF’s|
When Will A Bitcoin ETF Be Approved?
We can’t say for sure but there is mounting pressure on the SEC to green light proposals both internally and externally.
New chairman of the SEC Gary Gensler is considered a cryptocurrency advocate which suggests it’s only a matter of time. He previously taught courses on blockchain technology at MIT. However the SEC aren’t only focused on the ETF approval backlog, their priorities may also lie in:
- Sorting out the SPAC debacle
- Investigation in to Archegos collapse
- Creating token offering regulatory guidance
On that last point a public statement concerning the Coinschedule litigation included the following:
Whether we decide that all or a subset of token offerings are securities offerings, providing clear regulatory guideposts and then bringing enforcement actions against people who ignore them is a better approach than the clue-by-enforcement approach that we have embraced to date and that today’s settlement embodies. In short, we know folks have questions and confusion persists in the marketplace; it is important that we start providing clear and timely answers.https://www.sec.gov/news/public-statement/peirce-roisman-coinschedule
The SEC have digital assets on their desk but the recent 50% price drop probably didn’t do anything to aid their volatility and market maturity concerns.
SEC commissioner Hester Peirce tweeted in May “We’ve talked a lot over the last 3 years. I hope under Chair Gensler we’ll finally get comfortable with American investors having access to crypto-based securities products.”
It’s likely we will get some form of indication from the SEC that they are moving forwards with Bitcoin ETF’s before the green light is given. So far we haven’t seen anything solid in the way of positive sentiment or communications from the regulator.
One of the concerns raised previously by the SEC is that a Bitcoin ETF “could become too large to handle the lack of liquidity in the market”. Trading volumes have grown a lot this year and there is now around $50 billion USD a day in spot trading volume across global exchanges.
As trading volume on crypto exchanges grows alongside the success of international Bitcoin ETF’s it proves demand for the product exists. If Bitcoin goes on another bull run and breaks $100k then pressure will mount from the major traditional finance market participants.
Eventually government regulators will either have to support the growth of digital assets or risk being left behind.
I believe that we will see the SEC approve Bitcoin ETF’s in the next couple of years, with some of them growing rapidly in to billion dollar funds.
Greg King CEO of Osprey Funds OTC Bitcoin Trust has more insight than I do and stated:
If a Bitcoin ETF is coming through the Gensler administration, my view is it’s not going to happen this year.
Personally, I think if something happens, it’s more likely in 2022. It’s just really getting going. These things take time
I think they’re thinking about this, if I had to guess, more holistically, beyond just whether a Bitcoin ETF makes sense or not at this point, but really, more along the lines of what precedent are we going to set when we approve one.Greg King CEO of Osprey Funds OTC Bitcoin Trust
What Happens After SEC Approval
Once the SEC approves an ETF the fund managers will need to prepare for an exchange launch. All the funds are backed by physical goods which means that the funds will need to buy Bitcoin on spot markets equal to the amount invested in the fund.
This could create highly volatile conditions in the run up and immediately after the launch as traders front-run institutional investors allocating capital to the Bitcoin ETF’s.
A Bitcoin ETF will make it easier for institutional investors to go long on the asset. It will also open up new opportunities to short the asset. This means that hedge funds and traders can sell the asset without owning it putting downwards pressure on the market. This could potentially make it more volatile during Bitcoin price dips as traders pile on the shorts through ETF positions.
There’s no doubt that overall having a Bitcoin ETF listed on the NYSE would be extremely bullish. As soon as we get an announcement with any kind of positive insinuations it will likely move markets to the upside. The long term effects are more important however and open up Bitcoin as a new asset class for the worlds largest institutional investors.
Hopefully we will see a Bitcoin ETF in the not too distant future and it will have a positive impact on the migration to digital assets.
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Disclaimer: The content I create is to document my journey and for entertainment purposes. It is not under any circumstances investment advice. I am not an investment or trading professional and am learning myself while still making plenty of mistakes along the way. Any code published is experimental and not production ready to be used for financial transactions. DYOR and do not play with funds you do not want to lose.