Bitcoin ETFs: When will it hit the US market?

The Securities and Exchange commission (SEC) has yet to approve any of the 12 active Bitcoin ETF filings, clinging on concerns about the risky nature of the crypto market.

SEC’s refusal dates to 2013 with the first U.S. filing for a Bitcoin ETF by the Winklevoss twins, the Winklevoss Bitcoin Trust. The proposal was dismissed twice by the SEC but did not stop other providers from submitting new filings.

Wait a minute, what is a Bitcoin ETF?

Bitcoin ETFs are exchange-traded funds that allow investors to invest in bitcoin without having to go through the hassle of using a cryptocurrency exchange. They track the value of Bitcoin and trade on traditional market exchanges rather than cryptocurrency exchanges. Read more on Bitcoin and Crypto ETFs.

It all started with Crypto ETPs

Exchange-traded product (ETP) is the umbrella term for the collection of financial products traded on a stock exchange that include ETFs, as well as exchange-traded notes (ETNs), exchange-traded commodities (ETCs) and other products.

Cryptocurrency ETPs invest in the most popular cryptocurrencies and are physically backed, meaning they invest directly in the underlying asset. Some use derivatives to create a synthetically packaged trading product through swaps while others intentionally gear the investment through borrowing or futures.

These types of products are structured with high levels of complexity and a higher associated level of risk. In conclusion all ETFs are ETPs, but not the other way around.

Crypto ETPs and ETNs have boomed in popularity across Europe and UK as Trackinsight data shows. More than a dozen Crypto ETPs and ETNs have been launched and manage today more than $5bn in assets.

Where are we on Bitcoin ETFs now?

On February 16 2021, Canada became the first country to authorize a Bitcoin ETF, the Purpose Bitcoin ETF by Purpose Investments. As of August 16 2021, the ETF has CAD 1.2 bn in assets (~$1.0bn) and holds 22,050 Bitcoins. Since the fund buys Bitcoin directly, its performance is directly linked to its price, which by the way, is doing just fine as it nears $50,000 (as of August 2021, when this article is written).

Since Canada pioneered Bitcoin ETFs, Brazil and Dubai followed on a path of their own.

The Brazilian Bitcoin ETF, called the Bitcoin ETF QBTC11 was launched by QR Capital, is trading on the Brazilian Stock Exchange (B3) after obtaining the green light from the country’s regulators in March 2021.

Meanwhile, Canadian asset management 3iQ launched the Dubai Bitcoin ETF in June 2021 after Dubai regulators approved the ETF proposal in April.

In Europe, French asset manager Melanion Capital won regulatory approval to launch an ETF “tracking the price of bitcoin” for EU investors. The Melanion BTC Equities Universe Ucits ETF will actually invest in up to 30 stocks in sectors such as cryptocurrency mining and blockchain technology, which is up to 90% correlated to the price of bitcoin.

This is the closest equivalent to a Bitcoin ETF yet available, but other providers are surely working on launching the first Bitcoin ETF in Europe as we write this article.

Will Bitcoin ETFs finally hit the U.S. Market?

As of today, the U.S. only has cryptocurrency trusts such as the Grayscale Bitcoin Trust (GBTC). These trusts don't trade on major exchanges, have poor liquidity and trade at significant discounts or premiums to their underlying asset values.

The rising number of Bitcoin and other crypto ETFs/ETPs could drive more regulators to embrace the idea that cryptocurrencies can become a regulated and investable asset class. So, it may be just a matter of time for the SEC to change its stance and open the floodgates for pending and future Bitcoin ETFs.

SEC is gaining internal advocates for Bitcoin ETF

What’s driving optimism is SEC’s new appointee Chairman Gary Gensler, who seems to be more accepting of cryptocurrency than his predecessors.

Prior to becoming Chairman, Gensler taught classes in 2018 on blockchain and cryptocurrencies at MIT and once described Bitcoin as “a catalyst for change” in an article he wrote for crypto news site Coin Desk in 2020. He also focused on some of the many issues in the crypto industry, such as market manipulation and other illegal activities.

Another SEC crypto advocate is commissioner Hester Peirce, also known as “Crypto Mom”. While many commissioners have entirely dismissed the crypto markets, Peirce believes a U.S. Bitcoin ETF is long overdue and argues fiercely with her colleagues on the status of pending Bitcoin ETF applications.

Hoping to dive innovation forward, Peirce also reintroduced this year a revised version of the “Safe Harbor” proposal (initially made in 2020) that would give crypto startups a three-year grace period to become decentralized and meet other criteria before they would fully abide by US securities laws.

Other U.S. market participants have already embraced Bitcoin

Market participants are also embracing Bitcoin

• While the U.S. market is behind on accepting crypto ETPs, market participants have lined up to embrace Bitcoin:
• In 2017, CME group launched Bitcoin futures with great interest from market users. By 2019, they expanded with options on bitcoin futures as well as launching Ether futures in February 2021.
• Hedge fund manager Paul Tudor Jones invested 2% of his fund’s portfolio into bitcoin futures in 2020. He recently expressed his will to increase the stake to 5%.
• JP Morgan opened accounts for bitcoin exchanges after attacking Bitcoin early on.
• In July 2020, the US Office of the Comptroller of Currency announced nationwide custody service for the safeguarding of “tens of millions of Americans” cryptocurrency assets.
• Fintech players like Square and PayPal opens to cryptocurrency.
• Early 2021, Tesla announced bought $1.5bn in bitcoin.

Providers unbudging, continue to line up for SEC’s approval

Most recent Bitcoin ETF proposals filed in the US

Four new Bitcoin ETFs proposals have been filed in the U.S. this august. Two of the most notable additions to the filings were Invesco’s and VanEck’s Bitcoin Strategy ETFs.

Invesco’s fund will not directly invest in Bitcoin but will provide exposure to the bitcoin price largely through exchange-traded futures, and to a lesser extent ETPs, and private investment trusts that holds bitcoin. The filing for a Bitcoin Strategy ETF falls under the 40 Act that provides significant investor protection, a move that follows public recommendations by SEC Chairman Gary Gensler.

As for VanEck, the submission comes after they unsuccessfully tried to list a similar fund in 2017. The investment firm is resubmitting the application with minor amendments in the hope that the greater maturity of the futures market will make for a different outcome.

Here’s the current list of U.S. Bitcoin ETF filings:

Fund - Issuer - Filing Date - SEC Filing

• VanEck Bitcoin Trust; VanEck Digital Assets; 12/30/2020; Link
• Valkyrie Bitcoin Fund; Valkyrie Digital Assets; 1/22/2021; Link
• NYDIG Bitcoin ETF; NYDIG Asset Management; 2/16/2021; Link
• WisdomTree Bitcoin Trust; WisdomTree Digital Commodity Services; 3/11/2021; Link
• First Trust SkyBridge Bitcoin ETF Trust; First Trust Advisors; 3/19/2021; Link
• Wise Origin Bitcoin Trust; FD Funds Management; 3/24/2021; Link
• Kryptoin Bitcoin ETF Trust; Kryptoin Investment Advisors; 4/9/2021; Link
• Galaxy Bitcoin ETF; Galaxy Digital Capital Management; 4/12/2021; Link
• Teucrium Bitcoin Futures Fund; Teucrium Trading; 5/20/2021; Link
• One River Carbon Neutral Bitcoin Trust; One River Digital Asset Management; 5/24/2021; Link
• ARK 21Shares Bitcoin ETF; 21Shares; 6/28/2021; Link
• Global X Bitcoin Trust; Global X Digital Assets; 7/21/2021; Link
• ProShares Bitcoin Strategy ETF; ProShares Advisors; 8/4/2021; Link
• Invesco Bitcoin Strategy ETF; Invesco Capital Management; 8/4/2021; Link
• Bitcoin Strategy ETF; VanEck; 8/9/2021; Link
• Valkyrie Bitcoin Strategy ETF; Valkyrie Funds; 8/11/2021; Link

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