Issuers across the $5.9 trillion U.S. ETF industry are racing to win approval for the first Bitcoin fund, with one big hurdle standing before them: A regulator whose position right now is anyone’s guess.
At least four firms now have live applications for an exchange-traded fund tracking the largest cryptocurrency, with WisdomTree Investments joining their ranks late last week. VanEck Associates Corp., NYDIG Asset Management and Valkyrie Digital Assets were the names already in the running.
Their odds of approval are a complete unknown. The U.S. Securities and Exchange Commission has rejected all previous filings, but since then two Bitcoin ETFs launched in Canada, institutional acceptance of cryptocurrencies has snowballed and -- perhaps most importantly -- the regulator’s leadership has changed.
Getting In Line
Gary Gensler, the nominee to be next SEC chairman, is known for having a more open stance toward cryptocurrencies. That means hopes are riding high, and applications are piling up even before he’s in place and despite the regulator being unlikely to make big policy changes in his absence.
“These funds are getting their ducks in a row,” said Todd Rosenbluth, director of ETF research for CFRA Research. “They’re getting their paperwork filed, so if or when the SEC does OK a Bitcoin ETF, these asset managers will be ready.”
Despite the shifting landscape, the early applications still look ambitious. U.S. regulators have raised concerns about Bitcoin’s infamous volatility and how that could whipsaw unsuspecting retail investors. There remain worries about manipulation and criminal activity, with the likes of Treasury Secretary Janet Yellen pointing to the threat of terrorist financing.
One particular issue involves last-minute rules proposed by the outgoing Trump administration that would create new requirements for financial services firms to record the identities of cryptocurrency holders. These could have far-reaching consequences for an industry that prizes anonymity, and it remains unclear how the Biden administration will deal with them.
Issuers are pushing on regardless because of the stakes involved, with a potential bonanza on offer for the first to get an ETF over the line.
The Purpose Bitcoin ETF (ticker BTCC) in Canada, the first of its kind in North America, saw more than $165 million worth of shares change hands at its launch. One day later, just $14.6 million of shares traded in Evolve Fund Group’s Bitcoin ETF (EBIT) in its debut.
“The difference between being first and second in this two-ETF race hasn’t been so much gold versus silver as gold versus a participation trophy,” said Ben Johnson, Morningstar Inc.’s global director of ETF research.
‘Optimism Abounds’
With Gensler not due to take his position until later in the year, plenty in the industry still think approval is a long way off.
Yet in the past two years the SEC has shown its willingness to work with crypto companies “through guidance, requests for comment, statements and engagement through its innovation arm Finhub,” according to Jackson Mueller, director of policy and government relations at Securrency, a developer of Blockchain-based financial and regulatory technology.