There’s been renewed interest in bitcoin exchange-traded funds (ETFs) with the nomination of Gary Gensler to head the Securities and Exchange Commission and the approval of a true Canadian bitcoin ETF. Whether one gets approved in the U.S. is still unclear.
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The big news last week was the Ontario Securities Commission approved North America’s first bitcoin ETF in Canada. An ETF, which is essentially a retail-friendly, regulated bitcoin investment vehicle that can trade in popular brokerage apps, has long been a product the industry has wanted. Numerous applications have been rejected in the U.S., but the approval of one in Canada could be an early sign that we’ll soon see something similar in the States.
Why it matters
Basically, the idea is a bitcoin ETF would provide everyday investors with:
- Bitcoin exposure through existing retail trading apps, such as TD Ameritrade, BUT:
- These traders would not actually need to buy bitcoin.
In short, an ETFwould let people invest in bitcoin without having to set up a wallet or trust in an exchange that might go down when market volatility rises.
There are also those who believe an ETF would help spark or continue a bull run, but considering Elon Musk can pretty much just do that on his own now I’m not so sure an ETF seems as necessary as it did in 2018.
Breaking it down
The crypto market has matured since 2017 and 2018, when the U.S. Securities and Exchange Commission (SEC) was rejecting ETF applications left and right.
Matthew Hougan, the chief investment officer at Bitwise Asset Management (a firm that’s gone to great lengths to get a bitcoin ETF approved), told CoinDesk that the futures market tied to cryptocurrencies has grown significantly, the underlying spot markets are functioning better and the U.S. regulatory structure has evolved. But is that enough?
The main question is whether the market has matured enough to meet the requirements listed under the Securities Exchange Act, the federal law that oversees securities trading within the U.S.
Ark Investment Management CEO Cathie Wood recently told an audience she thinks the bitcoin market might need to see $2 trillion in demand before the SEC is comfortable with an ETF.
Hougan isn’t so sure, saying he thinks bitcoin’s futures market is comparable to hard wheat in size (hard wheat has both a futures market and ETFs, which is more than you can say for onions).
Some of the thinking about whether or not to file a bitcoin ETF application involves the new administration and the nomination of Gary Gensler as SEC chair. Gensler, a longtime crypto advocate who’s perhaps best known for his work on derivatives regulation at the Commodity Futures Trading Commission after the last financial crisis, is expected to be fairly crypto-friendly, at least to the degree of approving an ETF. Still, questions remain.
“It’s certainly too early to say what his view will be on crypto, whether it will be a priority, what that will do to influence the market, and I think that may even be a premature conversation,” Hougan said.
At the least, while Gensler may be interested in crypto, it’s not likely to be a priority, given many of the other issues he’ll have to address, including likely having to form a response to the market volatility seen last month with the GameStop stock pump.
The better question is what has changed over the past two years.
According to Hougan, the factors that would support an ETF approval include:
- Market efficiency has increased;
- Regulatory oversight has evolved;
- New custody solutions have entered the market; and
- There are better audit processes.
However, the SEC has used various objections in rejecting past ETF applications. The outstanding questions include:
- Whether the SEC’s market surveillance questions have been…