The US Securities and Exchange Commission (SEC) is expected to approve the first bitcoin (BTC) exchange-traded fund (ETF) by the end of this month. Industry watchers are anticipating that this move could lead to a sharp increase in bitcoin prices, much like the launch of the first gold ETF drove up gold in the early 2000s. Some forecasts even see bitcoin breaking the 100,000-dollar mark if a bitcoin ETF is approved in the US. However, so far US financial authorities have not approved a single bitcoin ETF, citing uncertain regulations and concerns over price manipulation. But as bitcoin ETF have recently been approved in several countries, expectations are rising that a bitcoin ETF could also be launched in the United States, leading market interest to focus on a potential ETF launch.
Among companies recently filing for ETF approval. VanEck, which already operates 57 ETF in various sectors, is considered a strong candidate. Other applicants include SolidX, Grayscale, ProShares, Direxion, GraniteShares, Bitwise, Wilshire Phoenix and Realty Shares ETF Trusts. Further, Valkyrie, operator of the Valkyrie Bitcoin Trust, filed its application in January and NYDIG completed its filing in February. Another applicant is FD Funds Management, a subsidiary of Fidelity Investments, which requested approval of its bitcoin ETF in March.
Meanwhile, several bitcoin ETF have already received regulatory approval in Canada and have been operating since February. Purpose ETF (BTCC), which is listed on the Toronto Stock Exchange (TSE), turned heads by collecting $421.8M within just two days of launch. In Canada, inverse ETF – betting on bitcoin price decreases – are also expected to launch soon. With an inverse ETF, investors gain if the bitcoin futures price drops. Bitcoin ETF have also been launched in Brazil and a similar financial product is on the market in Europe in the form of exchange-traded notes (ETN).
ETF allow bitcoin trading like stocks without bitcoin wallet
A bitcoin ETF is an investment product that tracks bitcoin prices. By purchasing ETF shares designed by financial companies, persons can invest in bitcoin without holding the actual cryptocurrency. Doing away with the process of purchasing bitcoin on virtual asset exchanges can reduce consignment fee or security issues. If a bitcoin ETF is launched, investors can trade bitcoin like stocks on stock exchanges like NYSE or TSX. The major advantage is that users can easily trade bitcoin without having to go through a virtual asset exchange. The price of one bitcoin ETF share follows the bitcoin price. If bitcoin increases in value, the ETF rises too and vice versa.
ETFs can also be created as inverse or leveraged products, resulting in more diversified investment products. Investors can use such products to diversify their bitcoin-related investment portfolio. A further advantage is tax-efficiency. Bitcoin is unregulated and distributed. Currently, it cannot be purchased by tax havens or pension funds worldwide. However, if an ETF were launched, SEC regulation would enable efficient tax filings. But there are also disadvantages. Because ETF have a management fee, investors holding many shares may pay relatively high fees. There also is the risk that the ETF does not accurately reflect the bitcoin price. Further, while bitcoin ownership is recorded on the decentralized blockchain, some point out that the concept of ownership is weak for ETF and that the consignment function needs to be strengthened.
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Institutional investors also preparing switch to ETF
The launch of bitcoin ETF is expected to have a positive impact on the market by diversifying bitcoin-related investment products and improving the accessibility of bitcoin for investors. For this reason, institutional investors are also preparing to convert their bitcoin trusts into ETF. Notably, Grayscale announced on April 6 that the company plans to convert its existing trust product GBTC into an ETF and release it on the market. In a recent blog post, Grayscale affirmed: “First and foremost we wish to make clear: we are 100% committed to converting GBTC into an ETF”. The company further explained that it had been closely examining ETF from both a commercial and regulatory perspective for several years. While Grayscale succeeded in attracting significant demand from institutional investors with its existing GBTC product, purchasers are required to hold their assets for 6 months and cannot resell. This has led to criticism that the trust is inefficient because purchasers cannot redeem their investment when they want to. Because of this inefficiency, GBTC trades at a lower premium than the actual current bitcoin value. Converting to an ETF would allow purchasers to buy and sell bitcoin investment products at their chosen timing. Grayscale hopes to thereby avoid incurring a negative premium like it does now.
Grayscale CEO Michael Sonnenshein stated: “If GBTC were converted into a Bitcoin ETF, it would be one of the most liquid commodity ETFs today”, adding that ultimately, the company aimed to convert all its products into ETF. Bloomberg analyst James Seyffart agreed that “if Grayscale’s trust product is converted into an ETF, GBTC shareholders will no longer need a 6-month lockup or 2% annual management fee”. He opined that with an ETF conversion, GBTC could be brought more in line with the net asset value (NAV) of Bitcoin. He added that “this could put a floor on the depth in the trusts’ market discount”. This is because unlike with GBTC, an ETF can frequently reevaluate the asset’s value, reducing the risk to traders of taking unexpected losses. Seyffart also expects the move to attract more participation by crypto market investors. Grayscale stated: “Persons holding GBTC will automatically own ETF shares. However, the specific conversion timeline depends on the regulatory environment”.
Blockchain industry bullish on bitcoin ETF launch prospects
The launch of a bitcoin ETF in the United States is expected to become a monumental event in the blockchain industry. Numerous experts have been providing their analysis of the outlook of SEC approval. Seungyeon Song, a researcher at Korea Investment & Securities, outlined in a recent report” “VanEck, which listed an ETN (VBTC) on the German stock exchange last November, submitted its listing application to the Securities and Exchange Commission (SEC) on [March] 15. SEC regulations require it to publish its decision on approval within 45 days, i.e. By April 29”, adding “Fidelity subsidiary FD Funds Management submitted its preparatory registration documents to the SEC on March 24”. In her analysis “it is too early to judge the outcome, but market expectations are higher than ever before and deserve attention … After bitcoin ETF were listed in neighboring Canada, expectations of a listing on the NYSE have risen”. Cryptocurrency media outlet Cointelegraph reported that market analysts expect the first bitcoin ETF to be approved on the US market within 1-2 years. When looking at the case of other American regulatory authorities, the report continues, the process is expected be completed quickly.
However, others consider the prospect of bitcoin ETF approval less likely. Todd Rosenbluth, an analyst at CFRA Research, believes that VanEck, Fidelity, Valkyrie will not receive bitcoin ETF approval within two years. Rosenbluth, who heads CFRA’s ETF and mutual fund research, stated in a recent CNBC interview that “the SEC would likely again extend the timeline for considering the Bitcoin ETF pitched by investment management firms”. While the SEC officially is required to announce its approval review decision on April 29th, he believes the regulator will instead extend the deadline. In his view “We’ve got a number of firms that have entered. We think we’re likely to see one in the coming year or two, but we don’t have a firm timeframe as to when the answer would be yes”.
Experts believe that the launch of a bitcoin ETF would have a large impact on the crypto industry. According to Cointelegraph “Despite the lack of United States-based Bitcoin ETF, hundreds of funds have made significant investments into the blockchain and crypto industries. […] Hundreds of funds have invested in publicly listed companies that are holding Bitcoin (BTC) on their balance sheets”. Notably, “[Amplify Transformational Data Sharing ETF] BLOK is among the top-performing ETFs of 2021 so far, having gained 71.7% since the start of the year”. Given that even though there is currently no Bitcoin ETF, investors are actively diversifying investment in the blockchain area, if an ETF actually appears, it could have a greater ripple effect in the industry.
Another factor driving expectations that a Bitcoin ETF will be approved in the United States is the appointment of Gary Gensler as SEC Chair. On the 14th, the US Senate confirmed Gary Gensler’s nomination as SEC Chair. Gensler headed the Commodity Futures Trading Commission (CFTC) from 2009 to 2014 and has been leading Biden’s financial industry oversight planning. According to crypto media outlet NewsBTC, “Gary Gensler has taught a course on cryptocurrency at MIT and might be softer on crypto than his predecessor. […] With Gary Gensler’s confirmation as SEC Chair, the first US bitcoin BTF might be approved”. Bloomberg similarly finds: “If the Bitcoin exchange-trade fund (ETF) is first launched in various countries such as Canada and Brazil, it will have no choice but to be also approved in the United States”. The report concludes that if a Bitcoin ETF is launched, it will fuel a rise in Bitcoin prices.