Institutional Bitcoin ETF Surge
- Bitcoin ETF
- SEC rejecting BTC Spot ETF
- High-Profile Institutions with Spot Bitcoin ETF Applications Currently in Play
Bitcoin ETF
A Bitcoin exchange-traded fund (ETF) is a financial product that allows investors to gain exposure to Bitcoin without directly owning the cryptocurrency. It works by pooling investor funds and using them to buy and hold Bitcoin as the underlying asset. The value of the ETF shares is typically tied to the price of Bitcoin.
Investors can buy and sell shares of the Bitcoin ETF on traditional stock exchanges, providing them with a convenient and regulated way to invest in Bitcoin. The ETF structure eliminates the need for investors to set up and manage their own digital wallets or deal with the complexities of buying and storing Bitcoin securely.
While Bitcoin ETFs offer potential benefits, such as liquidity and accessibility, there are also risks to consider. The volatility of Bitcoin's price can result in significant fluctuations in the value of the ETF shares. Additionally, the cryptocurrency market is still relatively new and unregulated, which raises concerns about market manipulation, security breaches, and regulatory uncertainties.
Regulators, such as the U.S. Securities and Exchange Commission (SEC), have expressed concerns about these risks and have so far rejected all applications for spot Bitcoin ETFs. They cite concerns over market manipulation, lack of investor protection, and the need for robust market surveillance.
Investors considering Bitcoin ETFs should carefully evaluate the risks involved, conduct thorough research, and understand the potential impact of regulatory decisions on the ETF's performance. It's important to assess one's risk tolerance and consult with a financial advisor before making any investment decisions related to Bitcoin ETFs or cryptocurrencies in general.
SEC Rejecting BTC Spot ETF
Despite numerous attempts, the U.S. Securities and Exchange Commission (SEC) has consistently denied applications for spot Bitcoin exchange-traded funds (ETFs) that provide direct exposure to Bitcoin. The SEC has expressed concerns about market manipulation within the cryptocurrency trading space, which has been a key factor in its decision-making process.
High-Profile Institutions with Spot Bitcoin ETF Applications Currently in Play
BlackRock
In a surprising move on June 15, BlackRock, the world's leading asset manager with over $9 trillion in assets under management as of Q1 2023, submitted an application for a Bitcoin spot ETF. The application outlined Coinbase as the proposed crypto custodian and spot market data provider, while BNY Mellon was mentioned as the cash custodian.
Bloomberg's Senior ETF analyst, Eric Balchunas, describes the investment product filed by BlackRock as a true spot market ETF and considers it a significant development. BlackRock has a strong track record of successfully launching ETFs, having emerged victorious in the majority of its battles with the SEC, boasting a remarkable 575-1 score, as noted by Balchunas.
The filing by BlackRock received swift praise from former Barclays CEO, Bob Diamond. It also sparked renewed interest from WisdomTree, Invesco, and Valkyrie, who subsequently submitted their own applications to the SEC. The collective news had a positive impact on Bitcoin's price, propelling it back above $30,000 in June 2023.
WisdomTree
WisdomTree, an asset manager based in New York, brings prior experience in running a Bitcoin ETF. In 2019, the company successfully launched a Bitcoin ETF on Switzerland's SIX stock exchange. Building on this expertise, WisdomTree entered the U.S. Bitcoin ETF arena in March 2021 by filing an S-1 with the SEC. Their proposal outlined the listing of shares in the WisdomTree Bitcoin Trust on the Cboe bZx Exchange, identified by the ticker symbol BTCW.
Despite multiple delays, the SEC continued its careful evaluation of the proposal, seeking input from the public and taking time to address the concerns raised in comment letters. Unfortunately, WisdomTree's initial application, along with those from Valkyrie and Kryptoin, faced rejection by the SEC in late 2021. However, undeterred by the setback, WisdomTree submitted a fresh application in mid-2023, closely following BlackRock's filing.
Invesco Galaxy BTC ETF
In a collaborative effort, Galaxy Digital and Invesco submitted a joint application for a Bitcoin ETF named the Invesco Galaxy Bitcoin ETF on September 22, 2021. Their proposal outlined a "physically-backed" ETF, emphasizing direct ownership of Bitcoin instead of relying on derivative instruments such as futures contracts. While Invesco Capital Management LLC serves as the sponsor of the filing, the specific custodian for the Bitcoin remains undisclosed at this time.
Invesco's wholly-owned subsidiary, a leading ETF provider in the United States, serves as the sponsor of the Invesco Galaxy Bitcoin ETF application. With their extensive experience in the ETF industry, the firm aims to leverage their track record to support the approval of the filing. John Hoffman, head of Invesco's ETF strategies in the United States, noted the similarities between the current state of Bitcoin ETFs and the early days of ETFs in the late 1990s and early 2000s.
This Bitcoin ETF is just the beginning for Invesco and Galaxy, as they have plans to introduce a range of crypto-specific ETFs to the American market. Following BlackRock's filing, the duo submitted a fresh application to the SEC in mid-2023, continuing their pursuit of a successful Bitcoin ETF launch.
Valkyrie Investments
Valkyrie, a newcomer in the Bitcoin ETF race, submitted its initial application in January 2021. The proposed ETF, designed to track the reference price of Bitcoin on the Chicago Mercantile Exchange, aims to trade on NYSE Arca. Valkyrie emphasized that the ETF would offer investors an effective avenue to implement diverse investment strategies, as outlined in their proposal. To ensure the security of the fund's Bitcoin holdings, crypto custodian Xapo would store the assets in cold storage.
In its filing, Valkyrie acknowledged the inherent volatility of Bitcoin, which is one of the SEC's primary concerns regarding a Bitcoin ETF. The company stated that the potential consequences of a Bitcoin exchange's failure could negatively impact the value of the ETF shares, highlighting the need for risk assessment.
Following the usual pattern, the SEC postponed its decision on Valkyrie's application, along with those of Kryptoin, WisdomTree, and Global X, before ultimately rejecting Valkyrie's and Kryptoin's applications around Christmas 2021.
However, Valkyrie managed to secure approval for a Bitcoin Mining ETF from the SEC in early 2022. This ETF is backed by holdings in companies that, on average, utilize 77% renewable energy. It includes prominent players in the sector such as Argo Blockchain, Bitfarms, Cleanspark, Hive Blockchain, and Stronghold Digital Mining.
Valkyrie made a fresh move in June 2023 by submitting another application for a Bitcoin spot ETF to the SEC.
Ark Invest
In June 2021, Ark Invest, headed by Cathie Wood, submitted an application for the Ark21Shares ETF. Teaming up with Swiss-based ETF provider 21Shares AG, Ark Invest aims to offer the ARK 21Shares Bitcoin ETF. If granted approval, the ETF will be listed on Cboe's BZX Exchange under the ticker symbol ARKB. Notably, Ark Invest is the first to disclose the proposed fees for its Bitcoin ETF, with the filing indicating a planned fee of 0.95% to be paid to 21Shares to cover operating expenses.
Having already invested in crypto exchange Coinbase, the Grayscale Bitcoin Trust, and Square, which holds a significant amount of BTC, Ark Invest has indirect exposure to Bitcoin. CEO Cathie Wood is a strong proponent of Bitcoin, considering it a new asset class with the potential to become a reserve currency.
Despite initial rejections of its ETF application in early 2022 and January 2023, Ark Invest remains persistent and has filed for a third time, demonstrating its continued pursuit of a Bitcoin ETF.
Reference
Staff, D. (2023) These are the high-profile spot bitcoin ETF applications currently in play, Decrypt. Available at: https://decrypt.co/62912/high-profile-bitcoin-etf-applications
(Accessed: 04 July 2023).