Bitcoin ETF providers see new hope for approval

Bitcoin mania has reignited a race to launch an exchange-traded fund in the US that would track the volatile cryptocurrency.

Approval for such an ETF would be a U-turn for the Securities and Exchange Commission, which in March refused to approve a fund proposed by Cameron and Tyler Winklevoss citing concern that “significant markets for bitcoin are unregulated”.

But the launch of bitcoin derivatives by two big exchanges has encouraged potential ETF providers to push for approval of funds that would track bitcoin futures instead of the underlying cryptocurrency.

Regulatory filings show that VanEck and Rex ETFs, which withdrew earlier applications after the SEC’s ruling on the Winklevoss Bitcoin Trust, refiled to launch bitcoin futures-based ETFs this month. Direxion Investments registered a bitcoin ETF on Friday. The providers declined to comment because of regulatory restrictions.

“The fact that there are now futures might improve the likelihood that they’ll get approved,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA. “Many firms are now trying to get one out — as in ETFs, there’s a big first-mover advantage.”
Amid sizeable and still-growing speculative interest in bitcoin, a listed, tradable vehicle that tracks the price of the cryptocurrency could attract US investors who are unable or unwilling to buy bitcoin on an unregulated exchange. A Canada-listed bitcoin trust and a Swedish bitcoin ETF both trade at a significant premium to the value of the bitcoins they say they hold, and the latter has quintupled in size since September to SKr5bn ($590m).

Ben Johnson, head of ETF research at Morningstar, said there were few asset classes or trading strategies for which ETFs did not already exist. “In a market where the waterfront has largely been covered, this is really the only major project that remains,” he said. “The futures cover most of the SEC’s concerns by creating a cleared, regulated financial instrument.”

The Winklevoss twins are appealing the SEC’s ruling on their ETF. The existence of futures may not resolve all the SEC’s concerns, however, since bitcoin itself is traded on unregulated exchanges and the technology underlying the cryptocurrency remains contentious. The regulator did not respond to a request to comment.

Jay Clayton, SEC chairman, released an equivocal statement on the bitcoin phenomenon last week, encouraging “Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers and apply good common sense when doing so”.

Cboe Global Markets, which launched the first bitcoin futures a week ago, has constructed an index to track the nascent market, which ETFs could use as their benchmark.

Chris Concannon, president of Cboe, said last week that “with regulated futures of a certain asset class . . . you do have an opportunity to introduce ETFs. We do envision ETFs coming to market”.

The CME Group, the world’s biggest exchange operator is also introducing bitcoin futures and in its regulatory filing to the Commodity Futures Trading Commission it said it had already “fielded hundreds of calls and emails” from people interested in the launch, including from ETF providers.

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