If US authorities ease their objections to exchange-traded funds linked to Bitcoin holdings, buyers who want to bet on Bitcoin may soon have more options to choose from. Major financial institutions including BlackRock, Constancy, and Invesco have submitted applications to market US « spot » Bitcoin ETFs that would be physically backed by actual Bitcoin. The US Securities and Trade Fee has previously frequently rejected these products because to concerns about volatility and possible manipulation. Investors especially saw the BlackRock filing as a sign that the SEC was about to abandon its long-standing hostility to such financial projects. Within days following BlackRock’s application, bitcoin prices rose to their highest level in one year.
1. What do Bitcoin ETFs look like?
ETFs, a $7 trillion market, are a member of a larger family of goods known as exchange-traded goods; however people frequently refer to all of them as « ETFs » as they are by far the most popular and largest category. Both major Wall Avenue financial institutions and crypto-native businesses are attempting to introduce an ETF that really owns Bitcoin as opposed to products that invest in Bitcoin futures. While there are currently a handful of crypto funds that are backed by futures, the SEC has not approved any uses for these so-called spot Bitcoin ETFs. Since 2021, US consumers have had access to Bitcoin ETFs backed by futures.
Issuers and investors are pushing for spot Bitcoin ETFs to be equally available to institutional and retail purchasers in the US, a development that is seen as having the potential to greatly increase participation in the cryptocurrency market.
2. How do Bitcoin futures and spot Bitcoin differ from one another?
Futures are agreements to buy, sell, or otherwise dispose of an asset at a certain price in the future. They are widely used in various markets, including the oil market, by investors who want to speculate on price movements without having to immediately own or take ownership of the underlying asset.
Bitcoin futures track the spot price of the cryptocurrency, which is not directly traded on platforms like the Chicago Mercantile Exchange, as it varies in reaction to buying and selling directly. Contrary to this, users buy and sell the precise digital currency through exchanges in the spot Bitcoin market.
3. What was there before?
The ProShares Bitcoin Technique ETF opened on October 19, 2021, to strong demand, becoming the first Bitcoin futures ETF available in the US. More than $900 million worth of shares were traded on that day alone. The largest Bitcoin ETP, the $1.5 billion Bitcoin Tracker EUR traded on the Stockholm Inventory Trade, invests in swap contracts to represent the returns of the cryptocurrency.
The Function Bitcoin ETF (ticker: BTCC), which debuted in Toronto at the beginning of 2021, invests instantaneously in « bodily/digital Bitcoin, » according to its issuer, Function Investments Inc. In the meanwhile, a number of US investment trusts have been tracking Bitcoin in a manner similar to that of ETFs, but with certain limitations. The Grayscale Bitcoin Belief (ticker: GBTC) is physically backed, which implies actual Bitcoin is kept within. Grayscale is involved in a legal battle with the SEC on its desire to convert its belief into an ETF; the agency is opposed to the conversion. Earlier before the end of the year, according to Grayscale, a call is anticipated.
4. What’s going on right now?
A recent surge of speculation that the long-elusive financing product might finally receive SEC clearance began when BlackRock Inc., the largest asset manager in the world, filed an application for a spot Bitcoin ETF in June. As a result of BlackRock’s application, the cryptocurrency market experienced a significant uptick, and several issuers—including Constancy Investments and WisdomTree Inc.—submitted new applications for similar ETFs.
5. Why did authorities reject an ETF for Bitcoin for such a long time?
Regulators have expressed concern that, in addition to their concerns about liquidity and manipulation, Bitcoin’s volatility may be too great for unusual buyers. This is because Bitcoin’s most recent three full-year returns have been favorable ones of 305% in 2020, up another 60% in 2021, followed by a lack of 64% in 2022. The SEC has also questioned whether or not funds would have the information required to properly value tokens like Bitcoin, as well as whether or not they could confirm who the owner of the underlying money is.
The SEC has also questioned whether or not funds would possess the information necessary to accurately value tokens like Bitcoin, as well as whether or not they could confirm who the owner of the underlying money is. SEC Chairman Gary Gensler stated in testimony before the Senate Banking Committee in 2021 that there were « issues in regards to the potential for fraud and manipulation » due to the lack of regulatory control and monitoring in the cryptocurrency markets. BlackRock and other issuers who have followed in its footsteps have suggested so-called surveillance-sharing agreements as a way to address some of the SEC’s concerns and as a way to reduce the likelihood of market manipulation and fraud.
The preferred market surveillance partner for ETF issuers is Coinbase Inc., the only publicly listed, pure-play spot cryptocurrency exchange in the US.
6. How may the SEC’s actions appear?
On June 30, news spread that the SEC had asked BlackRock, Constancy, and other issuers to revise their filings with further information. Crypto observers took the SEC’s request as a sign that the process was progressing favorably. The back-and-forth may continue, with some experts predicting that before the end of the year, at least one Bitcoin ETF will have received final clearance. Others urge caution, noting that this battleground is already covered in the remains of round 30 attempts that failed to persuade the SEC to give them a chance.
