With more than 35 million clients, $ 21 billion in revenue, and $ 3.8 trillion in discretionary managed assets, Fidelity Investments is one of the largest investment management companies in the world. It may take all your weight to break the losing streak of crypto fund sponsors who have taken on the United States Securities and Exchange Commission, SEC.
As reported, Fidelity filed with the SEC on March 24 a preliminary registration statement on behalf of its Wise Origin Bitcoin Trust, an exchange-traded fund, ETF, that would track Bitcoin’s performance as measured by its Fidelity Bitcoin Index.. This followed similar requests from the SEC this year from WisdomTree, CBOE / VanEck, NYDIG Asset Management, Valkyrie Digital Assets, and SkyBridge Capital.
A Fidelity Bitcoin fund would be an event of some historical significance. According to Nik Bhatia, author of the book Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies and adjunct professor of finance and business economics at the University of Southern California, This would be larger than Elon Musk’s purchase of $ 1.5 billion in Bitcoin (BTC) for Tesla’s corporate treasury, more significant than PayPal allowing its users to buy, sell and hold cryptocurrencies, and greater than the next Coinbase IPO.
“It would bring the final stamp of legitimacy to Bitcoin“Bhatia told Cointelegraph, and it could happen relatively soon.”Imagine that [la consejera delegada] Abby Johnson and Fidelity have submitted the application, knowing they will approve it, and now I think it is probably less than 12 months away“.
Nigel Green, founder and CEO of deVere Group – an independent financial advisory organization – told Cointelegraph, that if the SEC approves Fidelity’s BTC plans, it would mean “another big step into the mainstream world for cryptocurrencies. It will also inevitably drive more institutional investors toward the already burgeoning cryptoverse.“.
However, not everyone is sure. “The Fidelity name is important, but it may not be big enough to overcome the other obstacles.“Georges Ugeux, associate professor of law at Columbia University School of Law, told Cointelegraph. Among those obstacles are the lack of diversification of cryptocurrency funds, illiquidity and, at least in the short term, the fact that the agency does not yet have a confirmed president.
Lennard Neo, head of research at Stack Funds – a provider of cryptocurrency index funds – told Cointelegraph: “We have seen that many ETFs have been rejected by the SEC citing manipulation and market size as concerns.”. Still, the cryptocurrency space has grown significantly in recent years and has matured into a new emerging asset class. “If you keep knocking on the door, eventually it will open.”
However, there are reasons why approval of Bitcoin ETFs is unlikely in the immediate future, Michael Venuto, co-founder and chief investment officer of Toroso Investments, told Cointelegraph. “The role of the SEC is to protect investors. Approving a Bitcoin ETF could be seen as an endorsement that can go against more powerful forces within our government.“More clarity is still needed” at the federal, fiscal, tax and other regulatory levels “before the agency approves a BTC fund, he said.
Concern about concentration and liquidity
Regulators are concerned, among other things, about concentration risk, that is, the possibility of “amplified losses” because holdings are not sufficiently diversified, a risk that can be particularly pronounced with a Bitcoin fund. In its S-1 filing, Fidelity itself acknowledged that:
“Unlike other funds that may invest in diversified assets, the fund’s investment strategy focuses on a single asset within a single asset class. This concentration maximizes the Fund’s degree of exposure to a variety of associated market risks. with bitcoin and digital assets. “
In the case of equity funds, the SEC doesn’t want a single share to represent more than 25% of an ETF’s basket size, as measured by market capitalization, Ugeux told Cointelegraph. Bitcoin isn’t a stock, of course – it’s more like a commodity, at least according to the Commodity Futures Trading Commission and recent statements by top SEC officials – but a Fidelity BTC would seem to really stretch the concentration rules. of the SEC.
Another possible concern is liquidity, Ugeux added. ETF sponsors are supposed to continually buy and sell the underlying assets of the fund – to protect the sponsor and not have too many shares – but here too, a Bitcoin fund can be problematic because its underlying assets are not securities (relatively) liquids.
Fidelity acknowledged in its presentation that its ability to sell Bitcoin could be affected by limited trading volume, the lack of a market maker, or legal restrictions; in fact, a “government authority could totally suspend or restrict Bitcoin trading.” The presentation added: “Bitcoin is a new asset with a very limited trading history. Therefore, bitcoin markets can be less liquid and more volatile than other more established product markets.“
Still, these problems could be surmountable. “It seems a question of when – not if – the SEC will approve a Bitcoin ETF.“said Todd Rosenbluth, head of ETF and mutual fund research at CFRA, in a public statement he shared with Cointelegraph. Additionally, when approval comes in, he said that:
“We hope that several firms will receive the go-ahead because concerns [regulatorias] they were more with Bitcoin within an ETF than something specific to an individual proposal. Firms with an established presence in the ETF market and broad distribution would have the upper hand over the rest. “
As noted, around half a dozen companies have filed crypto ETF proposals with the US SEC this year. Could any of them beat Fidelity, and if so, would it have something like the impact of a Fidelity ETF?
“I don’t think Fidelity has an advantage in getting approval“Venuto told Cointelegraph.”The only one with a slight advantage is VanEck, as he was the first in the current class to request a 19b-4 rule change.“, which facilitated the listing of ETFs.
Felix Shipkevich, a cryptocurrency legal and regulatory attorney at Shipkevich PLLC, told Cointelegraph: “All applicants for a Bitcoin ETF are game changers“- that is, not just Fidelity. Even with regulatory ambiguity in the cryptocurrency space,”I have yet to see an ETF application from anything less than a top-tier financial services company.“
Related: A Bitcoin ETF May Come To The US, But Not All Cryptocurrency Investors Believe It’s Necessary
Even if approval is finally given, it may not happen as quickly. Hester Peirce, SEC Commissioner and sometimes referred to as “Crypto Mom” for her support of cryptocurrencies, addressed the ETF issue in a recent speech, and “did not give the impression that one [es decir, la aprobación] it would come immediately, “said Ugeux. Approval or approvals may take longer, too, because Gary Gensler has not yet been officially confirmed as SEC chairman nearly two months after his appointment, he added.
From Peirce’s speech, one could even conclude that the SEC has gotten into a small hole for delaying the approval of a BTC ETF so long. Not only has the SEC’s “reluctance to allow traditional investment vehicles to hold Bitcoin or Bitcoin futures has contributed to investors seeking more expensive, less convenient, or less direct substitutes,” he said, “It has also increased the stakes in any major retail product regulatory approval that we may one day grant.“
The wait has “magnified the first-to-be-approved advantage” for any Bitcoin ETF, and if the agency allowed one now, investors might think the SEC is giving its “blessing” to that particular product, which would be a wrong inferencePeirce added.
Cryptocurrency cynics are “on the wrong side of history”
Whatever the circumstances – whether alone or as part of a group, either before or after- “an ETF launched by one of the world’s largest mutual funds definitely makes a statement“Neo said in connection with the Fidelity presentation.
And continued: “It emphasizes the maturity and acceptance in Bitcoin” and would bring more institutional investors to the cryptoverse but also to retail investors “with a flexible and low-cost alternative to efficiently diversify their portfolio in digital assets.”
“Amazingly,” Green told Cointelegraph, “there are still some ‘experts’ who claim that digital currencies are not the future of money.” This investment giant’s move to launch a Bitcoin ETF further underscores that cryptocurrency cynics are on the wrong side of history. “