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Crypto index fund provider Bitwise Asset Management applied to launch a new bitcoin-backed exchange-traded fund (ETF) with the Securities and Exchange Commission on Thursday.
The company has filed an initial registration form proposing the Bitwise Bitcoin ETF Trust with the U.S. Securities and Exchange Commission (SEC). The fund would track the Bitwise Bitcoin Total Return Index, which measures the value of Bitcoin plus any “meaningful hard forks.”
If the ETF is approved, its shares will be listed on NYSE Arca, which focuses on trading stocks and options (rather than large-cap stocks, which are traded on the New York Stock Exchange).
From Bitwise they said:
“The proposed ETF differs from previously filed proposed Bitcoin ETFs in that it will rely on regulated third party custodians to hold its physical Bitcoin, and in that the index draws prices from a large number of cryptocurrency exchanges, representing the majority of currently verifiable Bitcoin trading.”
The proposed listing exchange, NYSE Arca., Inc. (NYSE), will file an application to list shares of the Bitwise Bitcoin ETF under a ticker symbol that will be determined at a later date. Bitwise expects the NYSE to file a so-called “Rule 19b-4” request with the SEC in the coming days requesting necessary NYSE rule changes in order to allow its application to be approved and the ETF to list once the registration statement is declared effective by the SEC.
Bitwise says its product will be based on an index that draws data from large, trustworthy, exchanges. It also will hold Bitcoins for the product with a regulated custodian, the firm said. The firm says those qualifications would address the concerns regulators have had about other proposals.
Matt Hougan, Global Head of Research, who oversees Bitwise’s indexing efforts said:
“The SEC has asked thoughtful and relevant questions about the quality of the crypto trading ecosystem, the reliability of crypto pricing, the strength of the arbitrage function in crypto and the robustness of crypto custody. We have spent the past year researching these questions and look forward to discussing those findings with the SEC staff in connection with the filing and listing application.”
‘Crypto-Trading Ecosystem Has Evolved’
John Hyland, Global Head of Exchange-Traded Funds said:
“While there can be no assurance that the 19b-4 application will be granted or the SEC will review and ultimately accelerate the registration statement, we are optimistic that 2019 should be the year that a Bitcoin ETF launches.”
We already wrote of how SEC objected to such proposals, which revolves around fears of price manipulation on the exchanges that would be used to track investments like the ETFs proposed by multiple companies in 2018, of which only one has yet to be rejected.
However, Hyland said that they believe the crypto trading ecosystem has evolved in significant ways in the past year, and that having a regulated bank or trust company hold physical assets of a fund has been the standard under U.S. fund regulation for the last 80 years. “We believe that is now possible with Bitcoin” he added.
The Bitwise organization and Bitwise Investment Advisers, LLC, which will act as sponsor of the proposed ETF, combines decades of expertise in ETFs with the experience of having managed private funds in the Bitcoin space for over a year. In developing and operating these private funds, Bitwise has addressed the issues of custody, trading, pricing, liquidity, and reporting, each of which the SEC has discussed in recently published guidance stemming from regulatory proceedings.
The firm launched the first cryptoasset index fund, the Bitwise 10 Private Index Fund, in 2017, and today offers five private funds focused on the crypto space to institutions, family offices, financial advisors and high-net worth individuals in the U.S. and abroad.
The reluctance of the SEC to green light such a product is part of broad regulatory hurdles that the industry faces in its attempt to gain widespread adoption.