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This month, asset managers Galaxy Digital, Invesco, ProShares, Valkyrie Digital, and VanEck have filed applications with the U.S. Securities and Exchange Commission (SEC) to operate Bitcoin exchange-traded funds (ETFs).
The applications were filed after SEC chair Gary Gensler signaled that the agency would look favorably on funds that traded futures for Bitcoin only, not cryptocurrencies generally; and that were structured according to the Investment Company Act of 1940, which governs mutual funds.
Previously the SEC approved the first Bitcoin mutual fund in the U.S. It began trading last month. CME’s Bitcoin futures contracts have been trading since 2017.
“I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded Bitcoin futures,” Gensler said previously in comments quoted by the Wall Street Journal.
CME and similar exchanges have agreements with the SEC that give the agency oversight authority.
Due to the technicalities, and related costs, that trading futures involves, the funds will be “more appropriate for institutional investors,” Steven McClurg, Valkyrie’s chief investment officer, explained to the WSJ.
“But when there’s not a spot product available, like with oil or natural gas, retail investors look toward futures products,” he acknowledged.
Crypto enthusiasts have been lobbying the SEC for ten years in attempts to win approval of crypto mutual and futures funds. (See Cryptocurrency: Special Report,” Trends Journal, 25 May, 2021.)
As digital currencies gained favor, and a degree of legitimacy, with professional traders, the SEC gradually relented under Gensler’s cautious guidance; he taught courses in blockchain technology, which underlies cryptocurrencies, at MIT before president Joe Biden tapped him to chair the SEC.
Futures markets allow speculators to bet on what the price of an asset will be on a specific date in the future, which can vary independently of the value of the asset itself.
TREND FORECAST: Regulating Bitcoin ETFs is the step that legitimizes oversight and regulation of other cryptocurrencies. Those that are regulated will become new vehicles for serious investors but will surrender some ability to innovate; those that remain outside regulation will test new technologies and approaches but remain the province of speculators.
There is room for both.