U.S. SEC approves a Bitcoin exchange fund

U.S. SEC approves a Bitcoin exchange fund

- U.S. Securities and Exchange Commissioner Gary Gensler gave what might be the strongest sign of support from the agency for a Bitcoin exchange fund. However, cryptophiles are not exactly thrilled.

At the center of the issue is how an approved fund would measure. Gensler, in his first major speech on cryptocurrencies, suggested an openness to an ETF focused exclusively on Bitcoin futures, which require investors to invest a substantial amount of money on margin to trade. That'd be different from a Bitcoin-backed fund, which is what many crypto enthusiasts have been hoping for.

'We see Bitcoin futures fund as additional products that consistently underperformed the Bitcoin price and bring inferior complexities in regards to how they should be managed at a higher cost than ETFs, said Matthew Sigel, head of digital asset research at VanEck, by phone. Simple put, they are substandard vehicles. His firm has crypto-focused applications in registration.

U.S. regulators have yet to launch a crypto ETF although more than a dozen companies are looking to approve one. Nine have filed authorization since the end of 2020, according to a tally of Bloomberg Intelligence.

Earlier: Bitcoin ETF Backers See Canada Funds Slump as Reason to Believe as Reason to Believe.

In the past, policymakers have voiced concerns about fraud and price manipulation, as well as worrying over how a fund would be able to handle Bitcoin's volatility. As part of his comments, Gensler said that while he is interested in blockchain - or the technology supporting digital assets - and sees potential value in crypto, he plans to fight aggressively for investors.

Meanwhile, Canada has launched several Bitcoin ETFs - the first to be approved by the country at the beginning of this year.

'Investors want the real deal and a quick glance east of the border shows that the real deal exists, but is prosperousing also, said Nate Geraci, president of the ETF Store.

Most ETF applications have been filed under 1930 s laws that allow stock exchanges to list products. Bloomberg reported that Gensler is hinting at the possibility of a filing requesting approval to apply through a 1940 law about mutual funds.

Here is what market-watchers had to say:

What the SEC seems to be doing is pushing individual investors into higher-risk, lower-quality products to get their Bitcoin exposure instead of sticking with the tested-and-true ETF wrapper that has given millions of investors exposure to so many different assets, many of which are much more speculative and illiquid than Bitcoin.

Futures introduce a layer of complexity, as contracts held by an ETF must be managed and rolled. Futures ETFs are unlikely to accurately track the Bitcoin price affixed. Plus, there are differences between taxation, he said. 'That said, I view this as a positive step towards physical Bitcoin ETF approval. Bitcoin futures are regulated by the CFTC, which provides the SEC with an level of comfortability they don't currently have with crypto exchanges. If forward-based Bitcoin ETFs are approved and show their mettle, perhaps the SEC can get more comfortable with entertaining the real deal.

I see it all as different stones. The same level of demand won't be there for a futures product so they won't grow to be as large or as fast as a physical Bitcoin ETF product will, he said. 'The mutual fund makes sense for numerous reasons. One, it's a 40 act product, which carries better investor protections. Two, mutual fund can be closed, an ETF can't. In three, futures are regulated. It provides a bit of additional layer of investor protection from the Bitcoin market. However, it doesn't make much difference because if you truly believe Bitcoin is manipulated, Bitcoin futures are going to be affected by said manipulation of the crypto currency market.

Todd Rosenbluth, head of ETF and mutual fund research at CFRA:

'Investors have favored ETFs over futures-based ones as the latter adds additional complexity, he added. 'However, I continue to think the SEC remains concerned that an ETF cannot be closed to new investors, creating liquidity risk. While the door is still open for an ETF approval, there is still possibility of crypto futures until near-term approval.

Futures are a derivative of Bitcoin and there is no physical bitcoin backing behind it. It is a proxy of the performance of Bitcoin. Probably it's just a first step. Perhaps it will lead to more comfortability in eventually leading towards getting an actual Bitcoin ETF.

'These products already exist in other public markets, such as Canada, and investors have been waiting for one to be launched in the U.S. Currently, investors can look to CFDs like RIGZ that only provide indirect exposure to crypto. If the SEC was to vouch for an ETF, it would be a huge step for the industry.