US Regulators Still Apprehensive on Bitcoin ETF Approval but Hasn’t Halted the Applications
Bitcoin exchange-traded funds (ETFs) have been the center of attention with applications to US regulators for quite a while now. Gemini has already had theirs denied, but there are other applications rolling in. Regulators have remained fairly cold to the idea of approving them at all, but they keep coming in.
For quite a while, bitcoin ETFs have earned a reputation on crypto Twitter as the natural step in the progress of Bitcoin as a digital asset. Even JP Morgan has called it a “holy grail” for the industry. Some advocates have said that it offers a new opportunity for retail investors to get involved in the market, opening the door to new capital.
As encouraging as these ideas are, regulators and other skeptics don’t believe that the market is prepared to take such a leap. One of their biggest concerns is regarding the potential for manipulation, which is the reason that the Securities and Exchange Commission cited for waiting to decide on VanEck’s ETF. In August alone, there were nine rejections, but there are many cryptocurrency funds that are still working on finding new options for funds in the meantime.
One of the many firms that is working on finding ways to make bitcoin ETFs more appealing and effective is BlockForce Capital. The company, which was formerly known as Reality Shares, is in charge of a crypto hedge fund, and they are constantly creating new retail products as solutions to the industry. When it launched the blockchain fund in January 2018, it finally gained some traction in the financial media.
Eric Ervin, the chief executive of BlockForce Capital, said that he’s working on multiple options that for a crypto fund. Recently, he’s been speaking with investment banks and cryptocurrency platforms to figure out the best options for a fund. Their creative approach has created new opportunities that the typical bitcoin futures and similar funds do not provide.
Previously, observers in the market believed that futures-based funds that track the trading of derivatives on CME and Cboe would be less risky, considering that they are on regulated exchanges. However, regulators have still been concerned about the potential for manipulation in these scenarios.
Ervin remains undiscouraged, examining an idea that involves an ETF setup that has derivative products tied in with cryptocurrency. He said, “It could include both Cboe and CME’s futures, as well as notes that trade on exchanges in Europe, and possibly Bakkt’s proposed physically-delivered futures. The diversification of the product could remedy concerns of manipulation.”
Another company that is on board with diversification is Bitwise Asset Management, which is based out of California. Their concept involves a fund that would track ten separate cryptocurrencies. Still it seems that any fund that has a link with the cryptocurrency industry are unlikely to see any approval from regulators. The only way that this could change will be when the SEC becomes more comfortable with the efforts that cryptocurrency exchanges are making to eliminate manipulation.
Co-founder of Themis Trading, Joe Saluzzi, commented, “The SEC has been very clear in the prior crypto ETF rejections – they won’t approve a crypto ETF until proper surveillance measures in the spot market have been put in place. Also, in light of the recent NY AG report which details the lack of surveillance at some of the biggest crypto exchanges, it is highly unlikely that the SEC will approve a crypto ETF any time.”
For the companies that aren’t working on ETFs, there are ways that they’ve been increasing their surveillance for manipulation within these exchanges. Gemini, for example, decided to collaborate with Nasdaq, utilizing the technology to watch for spoof trading and similar issues. Still, the majority of the market doesn’t have an official policy that would deal with manipulation in their markets, like Bitfinex, Bitstamp, and BitFlyer.
The head of digital asset strategy for VanEck, Gabor Gurbacs, said, “Digital asset trading platforms need to utilize market standard trading surveillance tools such as Nasdaq’s SMARTs technology to get institutional investors comfortable.”
There are two new companies that are trying to break into the market right now as crypto-first firms. Blockchain is one of them, which is toying with the idea of establishing a co-branded EFT with crypto ties. The other is Coinbase, which is working to build a bitcoin ETF, which they actually announced in March.
Approving bitcoin ETFs would most likely change the price of the coin, according to observers in the market. Trading with a pure bitcoin fund would act in a similar way to when the first gold ETF was traded, according to JPMorgan. The bank released a statement to clients that said, “Launched in 2004, SPDR Gold Shares ETF was the first gold ETF approved in the US by the SEC.” They added, “Since its launch, retail access to gold has skyrocketed as new investors more easily turn to the gold market as a portfolio diversifier and as a foundational asset.”
When the SPDR fund was originally launched, the price of gold went from $440 to $1,900 in 2011. Arguably, the first approved bitcoin ETF could perform in the same manner.