Will crypto exchange-traded funds (ETFs) eventually come to the United States of America? Dozens of cryptocurrency-based ETFs or ETF-like products are currently sold on regulated exchanges in Europe, and Canada and Brazil have launched their own versions this year. However, in the past eight years, no investment company has been approved by the U.S. Securities and Exchange Commission (SEC) for cryptocurrency-backed ETFs. The wind direction may be changing now.
“Futures-based Bitcoin ETFs will be approved in the coming weeks rather than months,” Sarson Funds LLC co-founder and CEO John Sarson told Cointelegraph, adding that “the Bitcoin futures market has now gone through A good test, it becomes liquid at the age of three.”
A month ago, the prospects were hardly so optimistic, but on August 3, when the chairman of the US Securities and Exchange Commission Gary Gensler (Gary Gensler) stated in a statement that US regulators Not necessarily against To futures-based bitcoin (Bitcoin) ETF.
Gensler said he was Looking forward to comments from his staff In the recently submitted documents, the company hopes to bring exchange-traded funds to the market and indirectly access the world’s leading cryptocurrencies, “especially if those [fund offerings] Limited to CME”-the Chicago Mercantile Exchange-“trade bitcoin futures. ”
“Gensler surprised us all,” Kathleen Moriarty, senior legal counsel at Chapman and Cutler LLP, commented to Cointelegraph. Gensler’s statement and subsequent withdrawal of Ethereum (Ethereum) ETF documents submitted by fund managers VanEck and ProShares prompted two Bloomberg analysts to believe that futures-based Bitcoin ETFs may be approved as early as October.
Is this too much interpretation of the organization’s tea? Futures-based BTC ETFs are really imminent. If so, why can’t ETFs directly own Bitcoin? Gensler once led the CFTC that manages the US derivatives market (including futures). He may think that futures-based encrypted ETFs provide another layer of investor protection, that is, the CFTC’s oversight over the SEC.
Also consider futures-based BTC mutual funds, Bitcoin Strategy ProFund (BTCFX) was approved by the US Securities and Exchange Commission in July without much fanfare. Perhaps the US Securities and Exchange Commission is using futures-based encrypted funds as a transitional product to test the regulatory waters of physical-based encrypted ETFs. For example, if all goes well, it will follow up in 2022.Then again, it is based on futures Is Bitcoin ETF really the best product for investors?
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Are Bitcoin ETFs close at hand?
Chris Kuiper, vice president of CFRA Research, told Cointelegraph: “We think it’s only a matter of time. Given that the SEC allows futures-based gold ETFs, it is difficult for them to finally disapprove a Bitcoin ETF that is also based on the well-established Bitcoin futures market.”
How Bloomberg analysts Eric Balchunas and James Seyffart interpreted VanEck and ProShares’ proposal to withdraw the Ethereum ETF as a good sign for crypto ETFs may seem confusing at first glance, but as Banz Capital CEO John Iadeluca explained to Cointelegraph That way: “Although VanEck and ProShares quickly withdrew their Ethereum Futures ETF app, they didn’t do the same with their Bitcoin Futures ETF application, which seems to be a positive signal for the approval of Bitcoin ETF. When these funding providers see one door being opened, there is probably no need to monitor all the doors.
Iadeluca further pointed out that when the Chicago Mercantile Exchange took the first step in cryptocurrency futures, it started with Bitcoin futures, and a few years later it was Ethereum futures. “It makes sense to have the same orders for futures ETFs, and the recent ETF application activity seems to imply that this happened earlier than expected,” Moriarty added:
“The other weird thing that nobody mentioned is that on May 11, 2021, [SEC’s] The Investment Management Department issued a statement regarding its current views on investing in bitcoin futures registered funds under the 1940 Act. The statement stated that it also does not allow the issuance of funds registered under the 1940 Act, which are ETFs that provide bitcoin exposure by investing in bitcoin futures. “
Obviously, there are still some ambiguities. “Regarding the October approval, this is anyone’s guess,” said Moriarty, who worked with Cameron and Taylor Winklevos in 2013 to submit a Bitcoin ETF application to the US Securities and Exchange Commission for the first time. It was finally rejected by the agency in 2017.
The most suitable product for investors?
Why does the SEC approve future-based encrypted ETFs before physical-based encrypted ETFs? After all, “future-based bitcoin funds don’t invest directly in cryptocurrencies – they don’t track BTC as closely as physical holding funds”, and their costs may be higher, says Kapil, CEO and co-founder of institutional cryptocurrencies. CrossTower of Rathi Exchange told Cointelegraph. The company “does not believe that it is the best tool for investors. It has caused significant inefficiencies in ongoing transactions and rollover costs.”
Neena Mishra, Director of ETF Research at Zacks Investment Research, told Cointelegraph: “Investors prefer physical Bitcoin ETFs, but if investors don’t see physical BTC, they will buy futures ETFs.” She thinks a futures-based version may be available soon Approved, maybe in November.
Of course, this is not the encrypted ETF that most people expect — Balchunas Comparison of It is “Serving O’Doul’s [non-alcoholic beer] When the party wants real beer”-but Sassen is not upset about it.
“Futures-based BTC ETFs will be very popular, just as futures-based commodity ETFs are very popular with investors,” he told Cointelegraph. “I think it is almost the same as a physical commodity ETF.” He added that the “unavoidable K-1” tax schedule will not prevent many people from investing in futures-based products.
Can futures-based ETF approval open the floodgates for other crypto-based ETFs in the United States? “The launch of the BTC ETF may boost the prospects of’physical’-backed ETFs in the near future,” Rathi told Cointelegraph. Managers who hope to launch an ETF in kind can use a functional futures-based ETF as a proof of concept. Rathi added: “They can provide the SEC with clear data on why physically-backed ETFs are much better for investors than futures-based ETFs.”
Concerns about market manipulation
Another question is why the US Securities and Exchange Commission (seems) believes that futures-based Bitcoin ETFs will provide more investor protection than ETFs that invest directly in digital currencies. After all, as the law professor JW Markham said, “commodity futures markets have been plagued by large-scale market manipulation from the beginning.” wrote A few years ago, this was still a problem.
In April, U.S. regulators launched “one of the largest oil market manipulation investigations in history.” extrusion Oil futures market.
Kuiper acknowledged that given the SEC’s main concern for Bitcoin ETFs regarding the lack of regulation of the spot market and concerns about market manipulation, this stance would be “somewhat strange,” he told Cointelegraph:
“Although the futures market is more regulated, futures is a derivative product and therefore separated from the underlying commodity. Therefore, given that the Bitcoin futures market is leveraged and cash-settled, it seems that there should be more concern about potential market manipulation in the Bitcoin futures market , Without the need to exchange or settle actual bitcoins.”
In addition, Rathi added: “Gensler is addressing counterparty credit risk by supporting futures ETFs. He is also promoting products that the SEC has seen in the past, such as VXX [a volatility ETF] And USO [an oil ETF], Which is also based on futures. However, he believes that although the Bitcoin futures ETF “solved a problem, it caused significant cost inefficiency.” This also increases the risk that futures market makers may try to manipulate the transactions that ETF administrators conduct each month. “
As mentioned earlier, the U.S. Securities and Exchange Commission approved ProFunds’ open-ended BTC mutual fund in July. The fund mainly invests in Bitcoin futures contracts. Some people believe that this approval has stimulated more fund managers to apply based on Bitcoin ETF for futures.
ETFs are becoming more and more popular with mutual funds due to their lower fees, tax efficiency, and the ability to trade like stocks. Companies that applied to provide futures-based Bitcoin ETFs in August include Invesco, VanEck, Valkyrie Digital Assets, Galaxy Digital, and ProShares, a subsidiary of ProFunds.
Timeline of “physical” Bitcoin funds
When can you expect U.S. ETFs to directly invest in digital assets such as Bitcoin and Ethereum-that is, “real beer”? Michael Venuto, co-founder and chief investment officer of Toroso Investments, told Cointelegraph: “A real Bitcoin ETF backed by the holding and storage of real Bitcoins—similar to gold GLDs—is still unlikely.” He added that soon The approved candidates are all Bitcoin strategies, using futures and other securities to “try to track Bitcoin’s behavior. Tracking errors can be quite high.”
Mishra sees futures-based Bitcoin ETFs as a transitional product. The United States may receive multiple approvals in November, and if they operate smoothly, the SEC may approve physical ETFs in the first half of 2022.
When futures and physical ETFs are finally available for investors, Mishra expects that physical ETFs will be more popular than futures-based ETFs. In fact, many people who hold futures-based Bitcoin ETFs are likely to switch to physical ETFs.
related: The great cryptocurrency flip: can Ethereum surpass Bitcoin?
What about the Ethereum ETF? “Soon,” Mishra said, adding that it will only be possible after the physical BTC ETF is finally approved. Will it be a big deal to approve a physically-backed ETF in the United States? “In general, this is positive for the cryptocurrency world,” she told Cointelegraph. Due to security issues, such as the inability to access their wallets, many investors shy away from investing in cryptocurrencies. “ETF will be safer and easier to trade.”
Overall, it seems that futures-based encrypted ETFs may be more likely to be approved by the SEC at this moment, even if its Bitcoin tracking is imperfect and the fees are higher. It can play an active role as a transitional product to make investors and regulators more satisfied with the new crypto ecosystem. In other words, “physical-backed ETFs, which are more similar to GLDs, will obviously be the best tool for investors,” Rathi told Cointelegraph.
