The U.S. Securities and Exchange Commission is suffering from failed cryptocurrency mutual fund applications. However, this year, following Canada’s leadership, the US could have an exchange-traded fund that replicates digital assets.
After all, the price of Bitcoin (BTC) is booming, the SEC has a new president for cryptocurrency experts and Canada, sometimes viewed as a beta testing site by US regulators, unveiled a Bitcoin ETF in late February that was incredibly popular with most customers. But is a crypto ETF really important?
Obviously, a lot has changed in the past year, with a global pandemic, a change in administrations in Washington, and regular price records on the crypto front. While many had only predicted as recently as June 2020 that an SEC-approved Bitcoin ETF would be a “BIG deal” and “open” the doors to BTC adoption, some observers are never again as certain that a crypto ETF would draws closer.
“I used to think it would change the rules of the game, but now I think it would be just another step in the evolution of cryptocurrencies.” said Cointelegraph Lee Reiners, CEO of the Center for Global Financial Markets at Duke University School of Law.
Eric Ervin, The 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 have finally gotten tired of waiting and figuring it out.” Ervin’s firm was one of nearly a dozen whose filings were denied by the SEC – the Reality Shares ETF Trust’s filing was withdrawn “on the recommendation of the SEC” in February 2019. Nevertheless Ervin acknowledged that “there are still many investors on the sidelines” who might welcome this investment option.
In the meantime, inquiries continue to flow to the US agency. 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 custodian banks in the world, With $ 38.8 trillion in assets under custody and / or under management, it will serve the VanEck ETF if approved. Nadine Chakar, The head of State Street Global Markets told Cointelegraph that the company is working to bring ETFs and exchange-traded debt securities to market in Europe and the Asia-Pacific region “Our customers have seen a growing interest in Bitcoin […] There is a feeling that the market is maturing. “ In the three years since early 2018 when Bitcoin interest peaked:
“They feel that the market has gotten more efficient, crypto custody solutions have been designed to provide the better security they are familiar with, and regulatory clarity has increased as we saw in recent OCC announcements . [Oficina del Contralor de Moneda]”.
More success in 2021?
Yet, Has the climate for crypto ETFs really changed in Washington? Michael Venuto, Co-Founder and Chief Investment Officer of Toroso Investments to Cointelegraph: “I think the chances of a US Bitcoin ETF getting approved are higher than in previous years.” Improving cryptocurrency custody, reporting and transaction transparency has allayed the concerns of many regulators “The fact that BNY Mellon announced its move into crypto custody on the same day a Bitcoin ETF was approved in Canada is no accident.”
“Investors have seen the US as the next potential market for ETFs that track digital assets.” wrote FTSE Russell, A subsidiary of the London Stock Exchange Group, which creates stock indices in a recent publication, added: “And speculation has only increased in the last few weeks when Bitcoin ETFs in Canada were first added to the ETP list of cryptocurrencies in Germany and Switzerland and the gray-scale hedge funds continue to be popular in this market.”
Regarding Gary Gensler’s appointment as SEC chairman, “This is a huge step in driving innovation in US financial markets.” added Ervin, who agreed that the likelihood of U.S. regulators approving a Bitcoin ETF this year has improved. He added:
“As a former CFTC chairman, Gensler understands the importance of financial innovation, but also has a healthy respect for the potential harm that unchecked markets can bring.”
Reiners noted that based on what the SEC recently said, ETFwise, which is not much, doesn’t seem any closer to a U.S. cryptocurrency ETF than it did a year ago. However, given the maturation of the cryptocurrency market and the resulting institutional interest, he believes that “it is becoming increasingly difficult for the SEC to say no over and over”.
Is an ETF Better Than a Trust?
But, Would an SEC-approved ETF really matter now? For example, what does an ETF offer Bitcoin investors that current “trusts” like Grayscale’s Bitcoin Trust do not?
The GBTC and other trusts are listed on the over-the-counter market, not major exchanges like New York, Reiners said. Compared, “An ETF is generally available to everyone,” including retail investors with no access to OTC markets.
Chakar, State Street, noted that GBTC is essentially a closed-end fund open to qualified investors. Although the Fund’s shares are available to retail investors in the secondary market, these shares are “not directly linked to the price of Bitcoin”. As a result, stocks tend to trade at a premium or discount to the underlying price of Bitcoin. “
Venuto added: “The structure of ETFs allows them to be created and redeemed during the day to meet demand. This feature eliminates the premium and discount issues that have impacted the price of GBTC.” However, he said that if regulators approved a Bitcoin ETF, “they would allow GBTC to evolve into an ETF-like structure in a short period of time.”
With that in mind, the Canada-based investment manager has Ninepoint Partners, who launched a Bitcoin trust fund two months ago, announced this week its plans to convert its trust fund to an ETF on the Toronto Stock Exchange after other Canadian investment firms tried to capitalize on the untapped cryptocurrency ETF market in the country.
How would a cryptocurrency ETF perform if created in the US? For example, would it attract more institutional investors? “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 said: “In terms of institutional adoption, this ship has sailed. […] An ETF is primarily used by individual investors and financial advisers. “
“An ETF is more attractive to both institutions and retail investors as it typically carries much less liquidity risk and greater transparency about the underlying price of the asset and associated fees.” Said Chakar.
But what about bitcoin and the introduction of cryptocurrencies in general? Would an American crypto ETF change that landscape? Reiners said to Cointelegraph:
“Now there are plenty of opportunities for retail investors to explore crypto, and the list continues to grow. Also, Tesla and other public companies are investing in Bitcoin. The barrier between the cryptocurrency sector and the traditional financial system is being reduced – eroded for several years, an ETF of Bitcoin would continue this limit blur. “
In terms of Tesla, MicroStrategy and other public companies that recently bought bitcoin, Chakar told Cointelegraph “Investing in a company that has publicly recognized that it is buying Bitcoin is probably not what most of them do [inversores] would do to gain exposure to the asset. “
He added that cryptocurrencies have been around for more than 10 years. “However, they have never been packaged in such a way that they can be seamlessly integrated into a portfolio.” For comparison, “ETFs have proven to be the preferred and growing investment alternative because they offer lower cost, liquidity and tax efficiency that direct investment may not offer, especially in young 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 floor seems silly to me.” And he added:
“There is no doubt that it is a better vehicle than a gated product, and the competition will bring better commissions and pricing, but I don’t think most investors will realize that they can buy Bitcoin directly without worrying about that having to worry about cumbersome freight. and the cost of a fund. “
“Bitcoin doesn’t need an ETF”?
Ultimately, it seems that at some point a cryptocurrency ETF will hit the US. As Reiners pointed out: “Regardless of your opinion [de la SEC] If they are the only ones resisting, 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 have predicted. A year ago, most did not foresee the current institutional uptake of digital assets.
As Cointelegraph said Macrae Sykes, As 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 of digital currency support by the Bank of New York Mellon are further evidence of the growing potential demand: “The approval of the ETF in Canada is just another step in the evolving regulatory process for access to digital assets.”
“Bitcoin doesn’t need an ETF”, Venuto told Cointelegraph. Although it is no longer a game changer, a crypto enthusiast hardly likes anything about an SEC-approved crypto ETF: “Access is access and the more access to the asset class the better,” said Ervin. After all, “not everyone wants to own Bitcoin directly.”