The US Securities and Exchange Commission is plagued with failed applications for cryptocurrency mutual funds, but this year, following Canada’s lead, the US could have an exchange-traded fund that tracks digital assets.
After all, the price of Bitcoin (BTC) is booming, the SEC has a new cryptocurrency expert president, and Canada, which is sometimes seen as a beta testing site by US regulators, debuted a Bitcoin ETF in late February that by most accounts has been incredibly popular. But does a crypto ETF really matter?
Clearly, a lot has changed in the last year, with a global pandemic, a change in administrations in Washington, and new price records being set regularly on the crypto front. While many predicted as recently as June 2020 that an SEC-approved Bitcoin ETF would be a “GREAT deal” and “open the doors” to BTC adoption, with a crypto ETF now closer, some observers are not as safe never again.
“I used to think it would change the rules of the game, but now I think it would be just one more step in the evolution of cryptocurrencies,” told Cointelegraph Lee Reiners, CEO of the Center for Global Financial Markets at Duke University School of Law.
Eric Ervin, CEO of Blockforce Capital and Reality Shares and co-founder of Onramp Invest, told Cointelegraph: “I think a crypto ETF is less significant than we previously thought because many institutional investors finally got tired of waiting and figured it out.” Ervin’s firm was one of nearly a dozen whose application was rejected by the SEC – the Reality Shares ETF Trust application was withdrawn in February 2019 “on the recommendation of the SEC.” Having said that, Ervin acknowledged that “there are still a lot of investors on the sidelines” who might welcome this investment option.
Meanwhile, requests to the US agency continue to flow. More recently, the Chicago Board Options Exchange requested permission to list a Bitcoin ETF proposed by asset manager VanEck.
State Street Corporation, one of the largest custodians in the world, with $ 38.8 trillion in assets under custody and / or management, it will serve the VanEck ETF, if approved. Nadine Chakar, Head of State Street Global Markets, told Cointelegraph that the company is working to bring ETFs and exchange-traded notes to market in Europe and the Asia-Pacific region, adding that “Our clients have seen interest in Bitcoin grow and […] there is a feeling that the market is maturing. “ In fact, in the three years since early 2018, when Bitcoin interest peaked:
“They feel that the market has become more efficient, crypto custody solutions have evolved to offer better security that they are comfortable with, and regulatory clarity has increased, as we have seen with recent announcements from the OCC. [Oficina del Contralor de Moneda]”.
More success in 2021?
Nevertheless, Has the climate for crypto ETFs in Washington really changed? Michael Venuto, Co-founder and chief investment officer of Toroso Investments, told Cointelegraph: “I think the odds of a US Bitcoin ETF being approved are higher than in previous years.” Improving cryptocurrency custody, reporting, and transaction transparency have allayed the concerns of many regulators, he said, and “The fact that BNY Mellon announced its move into crypto custody on the same day a Bitcoin ETF was approved in Canada is no coincidence.”
“Investors have been looking to the US as the next potential market for ETFs that track digital assets,” wrote FTSE Russell, a subsidiary of the London Stock Exchange Group that produces stock indices, in a recent publication, adding: “And speculation has only increased in recent weeks with the first launch of Bitcoin ETFs in Canada joining the ETP listings of cryptocurrencies in Germany and Switzerland, as well as the continued popularity of hedge funds in Grayscale that follow. this market. “
Regarding Gary Gensler’s nomination as SEC chairman, “This is a huge step toward advancing innovation in the US financial markets,” added Ervin, who agreed that the likelihood of US regulators approving a Bitcoin ETF this year has improved. He further added:
“As a former CFTC chair, Gensler understands the importance of financial innovation, but he also has a healthy respect for the potential damage that unchecked markets bring.”
Reiners noted that based on what the SEC had been saying recently, ETFwise, which is not much, a US cryptocurrency ETF appears to be no closer than a year ago. However, looking more broadly at the maturation of the cryptocurrency market and the subsequent institutional interest, he believes that “it is becoming increasingly difficult for the SEC to keep saying no.”
Is an ETF better than a trust?
But, Would an SEC approved ETF really be of great importance now? What, for example, does an ETF offer to Bitcoin investors that current “trusts” like Grayscale’s Bitcoin Trust don’t?
The GBTC and other trusts are listed on the over-the-counter market, not on big exchanges like New York, Reiners said. Compared, “An ETF is widely accessible to everyone,” including retail investors without access to OTC markets.
Chakar, State Street, noted that GBTC is essentially a closed fund open to Qualified investors, and although the fund’s shares are available on the secondary market to retail investors, those shares are “not directly tied to the price of Bitcoin.” As such, stocks are most often traded at a premium – or a discount – to the underlying price of Bitcoin. “
Venuto further added: “The structure of ETFs allows for intraday creation and redemption to meet demand. This feature eliminates the premium and discount issues that have affected the price of GBTC.” though he opined that if regulators approved a Bitcoin ETF, “then in a short time they would allow GBTC to evolve into an ETF-like structure.”
Along these lines, the investment manager based in Canada, Ninepoint Partners, who launched a Bitcoin trust fund two months ago, announced this week its plans to convert its trust fund into an ETF on the Toronto Stock Exchange, following other Canadian investment firms trying to profit from the untapped cryptocurrency ETF market in the country.
If a cryptocurrency ETF is created in the US, how would it develop? Would it attract more institutional investors, for example? “Many institutions can only invest in funds, so the ETF is a wonderful step in the right direction,” said Ervin.
Institutional interest will continue to grow regardless of an ETF, Venuto opined: “In terms of institutional adoption, that ship has sailed. […] An ETF will be used primarily by individual investors and financial advisers. “
“An ETF is more attractive to both institutions and retail investors in the sense that it usually carries much lower liquidity risk and greater transparency regarding the underlying price of the asset, and the fees associated with it,” Chakar said.
But what about Bitcoin and the adoption of cryptocurrencies in general? Would an American crypto ETF transform that landscape? Reiners told Cointelegraph:
“There are now many ways for retail investors to get exposed to crypto, and the list continues to grow. Also, now we have Tesla and other public companies investing in Bitcoin. The barrier between the cryptocurrency sector and the traditional financial system is lowered. has been eroding for several years now; a Bitcoin ETF would further blur this border. “
As to Tesla, MicroStrategy and other public companies that have bought Bitcoin recently, Chakar told Cointelegraph that “Investing in a company that has publicly acknowledged that it is buying Bitcoin is probably not what most of the [inversores] would do to gain exposure to the asset. “
He added that cryptocurrencies have been around for more than 10 years, “But they have never been packaged in a way that allows integration into a portfolio that is seamless.” By comparison, “ETFs have proven to be a preferred and growing investment alternative thanks to the fact that they offer lower cost, liquidity and tax efficiency that direct investments may not offer, especially in fledgling vehicles like Bitcoin.” Ervin told Cointelegraph that he likes the idea of an ETF for things like gold or silver, but for him, “wrapping Bitcoin in a bottom seems silly to me.” And he added:
“There is no doubt that it is a better vehicle than a closed product, and the competition will bring better commissions and price discovery, but I don’t think most investors will realize that they can buy Bitcoin directly without worrying about the cumbersome cargo. and the costs of a fund. “
“Bitcoin doesn’t need an ETF”?
Ultimately, it seems that a cryptocurrency ETF in the United States will eventually arrive. As Reiners pointed out: “Regardless of your opinion [de la SEC] On the merits of an ETF, if they are the only ones to resist, you have to wonder how long it will be before they give in to the immense pressure and interest in an ETF. “
In the current circumstances, a US government approved Bitcoin exchange-traded fund may not be the game changer some predicted. A year ago, most did not foresee the current institutional absorption of digital assets.
As told Cointelegraph Macrae Sykes, A portfolio manager and research analyst at Gabelli Funds, an investment management company, institutional interest in cryptocurrencies continues to grow. The presentation of Coinbase’s initial public offering and the recent announcement by the Bank of New York Mellon that it will support digital currencies offer further proof of the growing potential demand: “The approval of the ETF in Canada is just one more step in the evolving regulatory process to access digital assets.”
“Bitcoin doesn’t need an ETF”, Venuto told Cointelegraph. However, while it’s no longer a game changer, there’s little a crypto enthusiast won’t like about an SEC-approved crypto ETF: “Access is access and the more access to the asset class the better,” Ervin said. After all, “not everyone wants to own Bitcoin directly.”