- The SEC has started reviewing applications for Bitcoin exchange-traded funds, which have yet to be launched in the United States.
- The regulator will take bitcoin’s volatility and market maturity into account when deciding whether or not to give products the green light, experts say.
- The SEC recently pushed back a decision on a bitcoin ETF until at least this summer.
- See more stories on the Insider business page.
The growing popularity of Bitcoin, its increasingly high profile in US companies, and its growing market capitalization above $ 1 trillion are leading retail and Wall Street investors to wonder if and when an exchange-traded fund. Bitcoin can be traded in the United States. These questions are currently before the Securities and Exchange Commission, which is being asked in at least nine green light requests to launch what could be the country’s first cryptocurrency ETF.
But a decision may have to wait at least until mid-June. This week, the SEC delayed issuing a decision on a bitcoin ETF from asset manager VanEck which, if cleared, would be listed by CBOE Global Markets. The Commission said it was “appropriate” to take more time for reflection.
The arrival of a bitcoin ETF in 2021 would follow the start of this month’s trading of shares of Coinbase, the first cryptocurrency exchange to go public, as well as the wider acceptance of bitcoin as a payment method by companies, in particular electric vehicle manufacturer Tesla. Meanwhile, investment bank JP Morgan is preparing to launch its first Bitcoin fund for high net worth clients.
These and other Bitcoin developments may signal the increased likelihood that a Bitcoin ETF will gain approval, but the SEC has rejected further attempts.
Institutions “move from Wall Street hedge funds to PayPal, to Venmo, to Visa. So [the SEC] can’t really ignore it because the market decides to get involved, ”Ian Balina, founder and CEO of Token Metrics, a data-driven cryptocurrency investment research platform, told Insider.
Here are three hurdles and favorable winds that experts say stand in front of America’s first bitcoin ETF:
1) Bitcoin volatility
The world’s most traded digital asset is well known for its wild price swings, with gains or losses of 10% during a session not uncommon.
“The SEC has a tough job balancing the market’s clearly overwhelming desire to have access to BTC through an ETF against the inherent volatility of the asset class at this point in its life cycle,” George McDonaugh, co-founder of digital asset investment firm KR1, told Insider. “Volatility would be one of the main considerations. Bitcoin is very rare and comparatively still a very young asset class. Volatility is expected to subside over time, but it could be long after the market loses patience. [a bitcoin ETF]. “
Price volatility has declined in recent weeks and such moves make bitcoin more attractive to institutions, according to JPMorgan.
Liquidity in the bitcoin market had also been a factor under consideration by the SEC.
“I think it’s less of a problem now [than] in the early days … and this is largely linked to the entry of institutional players and the creation of depth and breadth in the market, ”Matteo Dante Perruccio, International President of Wave Financial, told Insider , a regulated digital asset manager in the United States. it’s 90% retail investors in an asset and you open it up to a larger universe of retail investors, I think that’s a very difficult decision to make as a regulator. But it does help you get large institutional investors to trade and invest in them. “
2) Market maturity
“It’s fair to say that if you look at the denials for the latest ETFs, you can see that several of the commissioners were concerned that the bitcoin market was not sufficiently regulated and, in their view, was susceptible to manipulation,” and “When I say that, I mean the manipulation would show up in the prices,” Amy Doberman, a partner in the securities department at law firm WilmerHale, told Insider.
“I think what you’re going to see with the pending approval requests is an argument that the market is much more developed than it was four or five years ago and that there was a lot more of price findings available than there were even a few years ago so that there was the ability to benchmark actual transactions and sufficient information to develop accurate prices, ”Doberman said.
3) What’s on the SEC base
The United States lags behind other countries in approving Bitcoin ETFs, with Canada approving the first publicly traded Bitcoin ETF in North America this year, the Purpose Bitcoin ETF, as well as Ethereum ETFs. Brazilian regulators reportedly approved two Bitcoin ETFs.
“People underestimate Canadian approval,” Wave Financial’s Perruccio said, calling the SEC’s relationship with Canada’s securities regulator “close cousins” “close cousins”. “Regulators have to talk a lot and … you always feel more comfortable in company when you make these bold decisions,” and the Canadian regulator is considered to be highly respected, he said. For a US bitcoin ETF, “I feel like it’s inevitable. It’s no longer ‘if’ but ‘when’ and I think the question of when is probably in 2021. That’s my prediction.” , Perruccio said.
As bitcoin ETF applications pile up, the SEC and its new chairman Gary Gensler have a slew of other issues they’re working on. Gensler, who was confirmed as chairman earlier this month, is seen by some supporters of the Bitcoin ETF as an advocate for cryptocurrency stemming in part from his teachings at MIT on the subject.
Gensler “will have to decide what he wants to prioritize,” Doberman said. He “is obviously very knowledgeable about cryptocurrencies and hopefully will bring an additional level of sophistication and currency appreciation to the table,” she said.
During his confirmation hearing, Gensler said the SEC, under his leadership, will examine issues surrounding protection and fairness for retail investors in the context of “gamification” on apps and platforms. trading.
The agency is reportedly considering tougher rules to curb projections made by Special Purpose Acquisition Companies, or SPACs, and has opened a preliminary investigation into leveraged trades at Archegos Capital Management. hedge fund that collapsed in March.
Although he is well versed in the subject of cryptocurrencies, Gensler, who served as Chairman of the Commodity Futures Trading Commission under the Obama administration, will not just browse Bitcoin ETF applications without scrutiny, Noah said. Hamman, CEO of AdvisorShares, a company. which offers actively managed exchange traded funds through its AdvisorShares trust.
Gensler will have the role “to review the rules and regulations and decide if, one, something is right or two, if the rules and regulations need to be changed to allow it to fit, because that makes sense and c is the right thing to do. do, ”Hamman said. AdvisorShares does not have a bitcoin ETF deposit with the SEC.