ETFs Are Having the Best Year Ever, While SEC Refuses to Give A Bitcoin ETF The Green Light

ETFs pulled in $488.5 billion in less than 7 months of 2021 and are on track to break the $497 billion full-year record set in 2020. Meanwhile, in crypto, since 2013, not a single one has been approved by the US SEC, which says it wants to protect the investors when ETFs are what will ensure low fees, tax advantages, and relative ease of trading for them. 

  • US money managers are stampeding into exchange-traded funds, with ETFs having the best first half of inflows on record.

According to Bloomberg, ETFs are on the brink of attracting the most money in just seven months than in any calendar year on record. Towards the end of last week, at $488.5 billion, they were on track to break the $497 billion full-year record set in 2020.

As investors migrate to the cheaper, easier-to-trade, and more tax-efficient vehicle, almost all of the top 25 largest asset managers in the US either already offer an ETF or plan to do so.

ETF - The Flow Show

ETFs are vehicles that pool investor cash and trade all day like stocks but with an intermediary that helps investors defer tax liabilities. Ben Johnson, Morningstar’s global director of ETF research, said,

“The stress period we lived through in the first quarter of 2020 further validated not just the ETF structure but the ETF ecosystem in its entirety.”

In this ETF mania, Vanguard leads the ecosystem with $239 billion in its Vanguard S&P 500 ETF. Together BlackRock, Vanguard, and State Street Corp. account for roughly 80% of the market.

Due to ETFs popularity, mutual funds have also converted into an ETF with quant giant Dimensional Fund Advisors leading in this.

“It will be paramount that every existing asset manager has a viable ETF strategy moving forward,” said Nate Geraci, president of the ETF Store, an advisory firm.

Big Three ETFs

Besides the S&P 500 repeatedly hitting new all-time highs this year, star manager Cathie Wood is driving this growth. Wood’s Ark Investment Management has pulled in $15.3 billion this year.

It is expected that the growth that started in the first half of the year will continue in the second half of the year. ETFs have collectively lost money in only two months in the past three years, and even then, the outflows were relatively middle.

“ETFs are an easy button of sorts that you can hit to get exposure to any number of different segments of the market,” drawing from a broader investor base, said Morningstar’s Johnson.

8 Years and Counting

While ETFs are having a wild year in the traditional world, the Bitcoin market hasn't had one yet in the US after eight years. Meanwhile, in other parts of the world, Canada and Brazil, several Bitcoin and Ether ETFs have been approved and traded on exchanges.

Recently, the U.S. Securities and Exchange Commission (SEC) postponed its decision on Wisdom Tree’s Bitcoin ETF and said that it is looking for comments from the public on the product, which isn't’ the first time.

Several Bitcoin ETFs and a couple of Ether ETFs have been filed with the SEC, but the regulator has yet to give any positive signs despite having the new Chair Gary Gensler. He told Congress this spring,

“The exchange that trades crypto tokens has not yet been registered as an exchange with the SEC.”

“Overall, this has significantly reduced investor protection compared to traditional securities markets and has increased the chances of fraud and tampering accordingly.”

The world’s largest digital asset manager, Grayscale, is also looking to turn its flagship product GBTC into an ETF, towards which CEO Michael Sonnenshein reiterated that they are 100% committed. Last week, they said Grayscale is working with BNY Mellon to achieve this.

According to Sonnenshein, the SEC is looking for a couple of different maturation points in the underlying market, which he believes are the “final stages” that regulators need to approve such a product and give investors the protections they are looking for.

For the US, to approve a Bitcoin ETF “is a matter of when not if,” he said on Monday.

While the SEC says it wants to protect the investors, especially the retail, ETFs will ensure low fees, tax advantages, and relative ease of trading for them.

The adoption of ETFs was what upended the way bonds, stocks, and commodities are traded. Giving Bitcoin ETFs greenlight will also allow anyone with a securities account to invest in crypto.

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