The cryptocurrency market is currently at a market cap of over $2 trillion. These are massive gains following the dips at the mid of the year that saw Bitcoin retail below $30,000. These changes are some of the reasons most mainstream investors tend to avoid digital currencies. It is the same reason why Bitcoin ETFs are becoming a necessity.
There have been speculations for years over the possibility of the US Securities and Exchange Commission (SEC) approving EFTs. Eight years since the ESC received the first request for EFTs, it is yet to give a green light for their use in the country. At the same time, Bitcoin has experienced price swings, at one point even trading at over $65,000.
Bitcoin ETF currently seems the ideal platform for traditional investors to invest in Bitcoin like they do any other stocks or commodities.
Here is everything you need to know about Bitcoin ETFs and what it means for investors.
What is a Bitcoin ETF?
The Bitcoin ETF meaning states that it’s a publicly-traded investment tool that tracks the value of an underlying asset. For the Bitcoin ETF, the underlying asset is BTC. The ETF allows investors to take a position of a given asset without having to undergo the various constraints of accessing the asset.
For example, to buy BTC, one must have access to the crypto exchanges and then find a crypto wallet to store their private keys. For most newcomers in the crypto world, all these are barriers. The Bitcoin ETF allows one to invest in BTC without having to necessarily own the underlying token. It removes the various technical risks that come with buying and storing the asset by oneself.
So far, the Bitcoin ETF is active in various countries around the world like Canada, Dubai and Brazil. However, the SEC has rejected all the applications from the companies looking to start operating the same in the US. The financial regulator indicates the possibility of market manipulation among the crypto traders as the reason behind the rejections.
Who has applied for a Bitcoin ETF?
The SEC has been receiving applications for Bitcoin ETF from as early as 2013. Even though it has rejected most of them, some remain pending. This gives the crypto world some hopes of a possible introduction of the Bitcoin ETFs soon.
Some of the applications that remain active include:
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VanEck
VanEck is one of the earliest and most persistent crypto outfits to apply for the Bitcoin ETF trading authorisation. It made its first application to the SEC in 2018. The plan was to trade the VanEck SolidX as it was partnering with SolidX. However, the application was withdrawn in September 2019.
The company then made a second stab at the application in 2019 as it was looking to operate the VanEck Bitcoin Trust as an ETF in December. This second application has also never been approved with the SEC keeping on delaying giving a conclusive report on the same.
The second application was made at a time when the SEC had a change in leadership, with the chair Jay Clayton having just left his seat. Still, nothing has seemed to go VanEck’s way. In the latest SEC delay tactics, it invited the public to comment on the possibility of the crypto industry being vulnerable to manipulation.
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NYDIG/Stone Ridge
The New York Digital Investment Group (NYDIG) is another company whose Bitcoin ETF application remains active. The company applied for approval within a few days after the leadership change in the SEC in 2021. The hope was that the new blood would have a more relaxed stance toward the Bitcoin ETF.
The application came at a time when Bitcoin had just hit $50,000 for the first time. However, while the regulator has communicated about the delay of other applications, there remains no word on the state of NDIG’s application.
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Valkyries Investments
Asset manager Valkyries Investments is one of the latest entrants in the race for a Bitcoin ETF trading license. It made an application to the SEC in January 2021.
On the application, Valkyrie claimed the ETF would trade on NYSE Arca while referencing the price of Bitcoin. In seeking approval, it was looking to provide investors with an efficient means to access multiple investment strategies.
For the risk assessment, the company acknowledges crypto volatility while also claiming it will affect the value of shares. The application remains active as the SEC is yet to respond on approval or rejection.
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Fidelity/Wise Origin
Fidelity is one of the companies that made an application for the Bitcoin ETF in March 2021. The company was looking to trade the EFT as Wise Origin Bitcoin Trust with Fidelity Service Company Inc serving as the administrator. Fidelity Digital Assets would hold the underlying BTC from which the EFT would be operating.
The directors of Fidelity believe that Bitcoin has a unique advantage over gold as an asset. The company also believes the market manipulation concerns have been mitigated thanks to the institutional crypto adoption and increasing investor participation. It believes these activities have led to the Bitcoin market becoming more mature.
SEC began the review of its application in May and is yet to provide conclusive feedback.
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WisdomTree
WisdomTree is another asset manager that stands out among the companies that have applied for the Bitcoin ETF operations. The company has experience running a Bitcoin ETF having launched one in 2019 at Switzerland’s SIX stock exchange. It is now seeking to operate the same in the US after making an application to the SEC in March 2021. It hopes to trade the Bitcoin ETF after listing it as shares on the WisdomTree Bitcoin Trust.
Ever since the application, WisdomTree has received delay after delay from SEC over its approval. The regulator has since called for public views on whether the application should be approved or rejected.
When will a Bitcoin ETF become available?
It is currently not clear when exactly the Bitcoin ETF will be available in the American market. SEC has employed all the delay tactics possible to ensure it does not commit to giving exact feedback on when the EFTs can become a possibility. Such delays have led to some companies like VanEck withdrawing applications over the fear of rejection.
Several firms like Grayscale are also readying their applications for the Bitcoin ETFs, however, they are still waiting for the SEC Bitcoin ETF decision. If the SEC was to approve one of the currently active applications, then the other firms would know exactly the expectations of the regulator when applying. In case, it rejects all of them then they would not bother applying, or use the rejection notes to understand what to do differently.
SEC, on the other hand, has various concerns it has to clear before approving the applications. It has reservations about the volatile crypto nature, the lack of transparency over the crypto market, and possible manipulation. The regulator also understands that digital currencies are different from traditional assets. For example, it is not yet clear what happens to the ETF in the case of a hard fork. There are also low liquidity concerns.
While these concerns persist, most of the companies applying for the approvals are also provisioning solutions. Earlier applications were easy to reject given the crypto world was more of a trial and error. Most people were still sceptical about cryptos and would not imagine any currency overtaking the fiat currencies.
The crypto space is now different as both institutional and small scale investors are all well conversant with crypto. The government already has crypto regulations and recognises crypto as an asset. At the same time, some countries are already trading the Bitcoin ETFs.
The SEC is therefore caught in a hard place, hence the delaying tactics. It would not want to prematurely reject the CFTs applications and derail the booming crypto world. At the same time, it is not looking to put the investors at risk. That is why it is currently calling for the public to view on whether to reject or approve some of the active applications. It is also taking more time to take everything into consideration.
Given the various developments, it is evident Bitcoin ETFs will be available in the US markets. The only unclear aspect is when exactly.
What does the Bitcoin ETFs mean for crypto investors?
Looking at crypto it can seem like the EFTs are not necessary given the crypto exchanges, and storage platforms are already available. However, what is lost to most people is that the crypto world is not accessible to everyone.
A recent study established that around 27.5% of those aged between 18-24 have invested in crypto. While only 7.4% of those over 55 have stakes in crypto. At the same time, those who invest in crypto are predominantly in the IT, Telecomms, Architecture and Engineering career paths. Therefore, cryptos are more like a reserve for the tech-savvy.
Bitcoin ETF is what the crypto world would use to remove all the underlying barriers to entry. Nobody would avoid investing in crypto fearing the possibility of losing keys. This would be a massive boost to the crypto world as it seeks to become a mainstream asset.