While crypto industry has dreamed of a Bitcoin ETF since at least 2013, and crypto companies were pushing it hard to get an approval, the SEC hasn’t given green light to any yet. What Bitwise explained is that the SEC are not against crypro ETFs at all.
SEC deputy secretary Eduardo Aleman said that the CBOE BZX Exchange rescinded its request for a rule change. The change would have allowed it to list shares of the VanEck SolidX Bitcoin Trust.
What Bitwise explained is that they are not against crypto at all. The crypto industry has dreamed of a Bitcoin ETF since at least July 1, 2013. That was the time when the initial prospectus for the Winklevoss Bitcoin Trust was filed with the U.S. Securities and Exchange Commission (SEC). Since then, eight other firms: SolidX (and Van Eck), Grayscale, ProShares, Direxion, GraniteShares, First Trust, REX Shares and, as of January 10 Bitwise have submitted filings as well.
To date, all of the filings that have come to a regulatory endpoint have been either denied, delayed indefinitely or withdrawn. Today, only the Bitwise and SolidX/Van Eck filings are still in process at the SEC with targeted review dates.
“We’ve received a lot of questions about our ETF application since we filed, in part because the team here has decades of experience in ETFs: Among our leadership team, John Hyland, Bitwise Global Head of ETFs, was the chief architect of the first crude oil ETF (ticker: USO) and the first natural gas ETF (ticker: UNG), and Matt Hougan, Bitwise Global Head of Research, was the former CEO of leading ETF data and analysis firm ETF.com.”
As it seems, the biggest misconception that the industry today is encountering while discussing the outlook for a crypto ETF is the belief that the SEC is fundamentally anti-crypto. The major reason for such a view for SEC comes from the fact that the regulator has had multiple delays in approving the first Bitcoin ETF. Reiterating his stand, chairman of the U.S. Securities and Exchange Commission (SEC) said that he still has a few worries before getting “comfortable” with the investment product.
But if one looks at the history the every “first” in the ETF industry had to wait for multiple years before crossing the line. Bitwise list downs the “firsts” and the time each one has taken to cross it.
Some politicians in the US have sought to remove cryptocurrencies from the oversight of the SEC, which would free the industry up to build and flourish. We already wrote of how Two U.S. congressmen Warren Davidson and Darren Soto, are introducing a bill that would exclude digital currencies from securities classification and substantially improve the tax treatment for cryptos.
What was recently commissioned is a formal survey of 150 financial advisors, and a strong majority — 58% — said that an ETF would be their preferred way to invest. When asked what would make them more comfortable allocating to crypto in client portfolios, 54% said “better regulation” and 35% said “the launch of an ETF.” This holds true for many family offices and institutions as well.
The U.S. Government Shutdown, a Major Reason of the Withdrawal
The ongoing U.S. government shutdown has been a major spanner in the wheel of Bitcoin ETF. Thus, the U.S. Securities and Exchange Commission (SEC) has announced that it has decided to keep all operations on hold. However, the agency has staff “available to respond to emergency situations involving market integrity and investor protection, including law enforcement”.
The questions the SEC has asked publicly around custody, pricing, arbitrage and market manipulation in the crypto markets are the right issues to be discussing. These topics have been the source of real challenges over the last few years. We’re optimistic that progress in regulated crypto custody, the massive improvement in and expansion of the crypto market making community, and new data insights will help make approving a product more feasible.
Do We Actually Need A Crypto ETF?
There are a significant number of people who question the need for a crypto ETF, wondering why people would want to marry a next-gen financial technology like crypto with legacy financial technologies like ETFs.
The answer is that ETFs are a well-understood construct that is plug-and-play with the existing software platforms, paperwork, processes, and workflows that professional investors and firms use. At a 0.25%-10% allocation, crypto isn’t a deep focus of most investors, and most aren’t going to reinvent the wheel just to access it. They need it to be easy.