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Comments from US Securities and Exchange Commission Chairman Gary Gensler this week have made some digital asset managers realize that the first-half enthusiasm for a true exchange-traded fund (ETF) bitcoin may have been premature.
In remarks to the Aspen Security Forum on Tuesday, Gensler indicated that he would support ETFs based on bitcoin futures traded on the Chicago Mercantile Exchange (CME).
“I think his comments are pretty clear that a pure spot bitcoin ETF is not coming soon and futures products could potentially be considered,” Steven McClurg, chief investment officer of Valkyrie, who filed a request. with the SEC for a bitcoin ETF. . “I think this will definitely guide our conversations and our product roadmap.”
While many in the crypto world suspected that Gensler would favor investment vehicles that include Bitcoin futures contracts, this is the first time that Gensler has explicitly confirmed its preference, said James Seyffart, ETF research analyst at Bloomberg Intelligence.
Some industry participants said this could lead to a series of applications that include Bitcoin futures. Atlanta-based asset manager Invesco on Thursday requested an ETF that would include exposure to futures, Grayscale Bitcoin Trust (GBTC) and Canadian bitcoin ETFs. (Grayscale is a subsidiary of Digital Currency Group, the parent company of CoinDesk.)
The advantage of prioritizing bitcoin futures over spot bitcoin ETFs is unclear, McClurg said.
“It’s a really weird world where you can run a bitcoin ETF in Canada, Americans can buy it through their brokerage houses, and you can set up a US ETF that includes Canadian ETFs, but a bitcoin ETF is not. available in the United States. McClurg said.
Gensler may think that an investment vehicle based on federally regulated bitcoin futures may offer more regulatory cushion than a vehicle based on cash bitcoin. exchanges that are regulated state by state, Seyffart noted.
“I’m not really buying this, because … there is a definitive relationship between spot bitcoin and the futures market, so whatever you do here there is going to be some overlap. [in] related markets, ”said Seyffart. “I think the most important thing here is that it’s basically a delay.”
Not only would Bitcoin futures products be more complex and expensive to manage, the market might not want it, Seyffart said.
Historically, institutions have flocked to closed-end funds such as GBTC to trade bitcoin futures on the CME, Seyffart said.
“Bitcoin futures are growing and they’re growing at a healthy pace, but they still don’t see GBTC trading,” Seyffart said. “We’re talking about $ 25 billion worth of GBTC after a drawdown and a cut-price negotiation. ”
Besides surveys showing that investors want a bitcoin ETF, MicroStrategy’s action as a proxy for a bitcoin ETF is also proof that the market wants an investment vehicle based on the spot price of bitcoin, Seyffart added. MicroStrategy is a software company that holds a large amount of bitcoin in its treasury.
Commodity futures also have the potential to trade at a negative premium, said McClurg of Valkyrie.
“I would say that [a futures ETF is] not as safe for retail investors as futures don’t always accurately track what’s going on in the spot market, ”said McClurg.
After Gensler’s comments this week, it is likely that the SEC will continue to approve applications for bitcoin futures mutual funds and then approve ETFs based on bitcoin futures, Seyffart said.
“The advantage of mutual funds is that if they get out of hand or the size gets too big or whatever happens, you can close a mutual fund, but you can’t close an ETF,” he said. said Seyffart.
ETF provider Teucrium is the only issuer to have applied for an exchange traded product (ETP) based solely on Bitcoin futures, Seyffart added. But Teucrium has only filed its S-1 and has yet to initiate an SEC review period by filing a Form 19b-4.
The SEC has 240 days after an issuer files its 19b-4 to make a decision on an application. The first expiration of one of these regulatory windows comes in November with VanEck’s 19b-4, and Seyffart has said he expects the SEC to reject VanEck’s request and possibly other requests. throughout the rest of the year and into early 2022.
According to Gabor Gurbacs, director of digital asset strategy at VanEck, VanEck was one of the first issuers to deposit a bitcoin futures ETP before the existence of bitcoin futures, and filed for a mutual fund application. bitcoin futures.
“Futures contract management is expensive and the margin requirements are extremely high at an exchange level like CME,” said Gurbacs. “You also have to renew the futures contracts every month, which incurs costs and adds volatility.”
Gurbacs declined to comment on VanEck’s future strategy, but said he expects to see more ETF applications based on Bitcoin futures contracts in the future despite the costs and complexity associated with forward contracts. term.
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