Waiting for a US ETF that actually owns crypto? It may be a while

Posted: 2 February 2022 6:52 pm
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The first Bitcoin futures ETFs are already trading on the US markets. But the SEC continues to spurn Bitcoin spot ETFs that actually might own the crypto.

The US Securities and Exchange Commission (SEC) refused to approve Fidelity’s Wise Origin Bitcoin Trust spot ETF last week. It’s the latest denial for an ETF that would invest in the coin itself, and as it was proposed by a fund giant, dims hope for an SEC approval anytime soon.

As it’s not a change in position, this shouldn’t affect Bitcoin’s price in the short term.

But SEC approval of a Bitcoin spot ETF would make the cryptocurrency accessible to a wider range of retail and institutional investors, which could raise Bitcoin’s price. The crypto world has been watching for this, but the SEC keeps saying no.

This isn’t the first spot Bitcoin ETF rejected by the SEC

The SEC recently rejected a Bitcoin spot exchange-traded fund (ETF) by investment advisory firm First Trust and hedge fund SkyBridge Capital. Previously, the commission rejected other spot Bitcoin ETF proposals from VanEck and WisdomTree, and from Grayscale.

The SEC last year did approve Bitcoin ETFs that track the price of the cryptocurrency via futures and don’t invest directly. Today, you have a few Bitcoin futures ETFs to invest in, including in the US:

  • ProShares Bitcoin Strategy ETF (BITO)
  • Valkyrie Bitcoin Strategy ETF (BTF)
  • VanEck Bitcoin Strategy ETF (XBTF)

The commission says it wants to protect investors

One reason for rejecting Bitcoin spot ETFs is because of SEC’s concerns over potential fraud and manipulation in the Bitcoin market. The SEC states on its website that its mission “is to protect and inform investors and to regular capital markets.”

Previously, the Commodity Futures Trading Commission (CFTC) did most of the leg work for the Bitcoin futures ETFs to get approval from the SEC. All that crypto exchanges had to do to get the Bitcoin futures ETFs listed was to certify to the CFTC that in their judgment Bitcoin futures weren’t susceptible to manipulation.

Is there a chance to get a spot Bitcoin ETF soon?

The difference between a spot and a futures Bitcoin ETFs in terms of protecting investors seems negligible — the first directly owns Bitcoin, the second tracks its price. Investors who own either of the two are exposed to Bitcoin’s price.

At least one insider suggests the SEC is moving closer to approval.

During our engagements, the SEC has asked questions pertaining to Grayscale becoming a spot bitcoin ETF,” said Craig Salm, head of legal at Grayscale in a recent Forbes article. “The commission is asking things like how does the index methodology work? What types of exchanges are included in there? What discretion does the index provider have? How has Grayscale’s pricing worked over the last couple of years?”

“From those conversations, I have seen them in real time becoming more familiarized and comfortable with the spot-based products.”

Getting a spot Bitcoin ETF is bullish for Bitcoin’s price

Once there is a true Bitcoin ETF on the market, it should drive Bitcoin’s price higher because these ETFs have to actually buy and own Bitcoin, thus driving demand for the cryptocurrency.

Kliment Dukovski owns Bitcoin as of the publishing date.

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