The push for a bitcoin Exchange-Traded Fund has been on for close to 4 years with no success. However, things might be looking bright for cryptocurrency traders as a closed-end fund; much similar to ETFs might be underway. There seems to be a silver lining in here but traders would have to wait as Bitcoin ETF is bound to go full blast in two years.
The proposed bitcoin fund will allow investors to trade in financial securities tied to bitcoins without necessarily owning bitcoins. In fact, ARK Innovation ETF, which operates the first U.S cryptocurrency exchange-traded fund, gains access to cryptocurrency through the Bitcoin Investment Trust. The BIT is an investment vehicle that allows investment in bitcoins, deriving its value from the price of bitcoins. BITs liquidate into GBTCs, after one-year holding period and sold to underlying investment funds.
GBTCs have a higher premium over the bitcoins. However, they are a much better investment as they offer greater benefits compared to buying bitcoins directly. With GBTC, investors have a titled and audible ownership. Shares are eligible to be held in tax-advantaged accounts such as IRA and are publicly quoted. This provides investors with extra layers of security and flexibility in managing their funds. Also, investors enjoy a network of trusted service providers.
When will Bitcoin exchange traded funds (ETFs) be approved? In March this year the Winklevoss Twins Bitcoin ETF application was rejected by the Securities and Exchange Commission (SEC). Then both investment management firm VanEck and ETF specialists Rex Shares withdrew filings with the SEC to launch ETFs. The SEC has argued that these firms cannot file a Bitcoin ETF until the underlying futures contracts are already in place.
This very sudden withdrawal of proposals for recent Bitcoin ETFs has left some questioning the outlook for cryptocurrency related ETFs? Despite the rejection the Winklevoss twins are not giving up after their very public ETF setback and have reapplied for approval — with the SEC agreeing to take another look.
Both issues can be resolved and that cryptocurrencies are a “de facto new asset class.” The demand from investors, both at the retail and institutional levels will soon grow to a level that regulators will no longer be able to postpone the ineluctable approval and trading of crypto instruments on regulated financial markets.
The SEC cited at least two reasons to disapprove the Winklevoss ETF. First, too much of the trading activity takes place outside the US, adding a certain amount of risk that the SEC cannot properly account for. Second, the ability and propensity for Bitcoin to fork from time to time adds complexity to the ETF’s composition. These are minor and temporary objections that will eventually be overwhelmed by the market’s appetite for a traditional Bitcoin investment vehicle.
Many industry experts think a Bitcoin ETF will not be approved anytime soon. But surprises are bound to happen.
CME Group Inc., the world’s largest exchange, said on Tuesday it plans to introduce bitcoin futures by the end of the year, following fellow Chicago exchange Cboe Global Markets Inc., while a startup, LedgerX, offers swaps and options. Bitcoin, the largest cryptocurrency climbed to a record after the announcement. It’s now up more than sixfold this year.
Both futures exchanges need approval for the contracts from the U.S. Commodity Futures Trading Commission. Bitcoin futures should make it easier to create an ETF on the digital asset, but ETFs would also need U.S. Securities and Exchange Commission approval.