Will there be a bitcoin ETF in 2019?
Matthew Hougan, Global Head of Research at Bitwise Investment – a San Francisco-based asset management firm, says “conditions” today are suitable to satisfy the SEC’s concerns. Bitwise has index funds that track cryptocurrency performance and may file for a Bitcoin ETF in the future, according to Hougan.
In a January letter, the federal agency had laid out problems with the existing cryptocurrency ecosystem. These problems spanned a wide spectrum and pertained to price manipulation and absence of viable custody solutions for cryptocurrencies.
Since the SEC’s letter, several established financial services companies have plunged into cryptocurrencies and announced products aimed at the industry. For example, Fidelity Investments launched a separate company, Fidelity Digital Assets, to develop a cryptocurrency trading and custody platform. NYSE owner ICE is also in the game with Bakkt, another crypto trading and custody platform.
“We believe the (cryptocurrency) ecosystem is mature enough to allow an ETF to trade,” said Hougan, who was CEO of InsideETFs.com earlier. “These are all legitimate concerns and the issues are complex, but we (like others who have filed ETFs) believe that they can be resolved.” He says much depends on efforts by companies proposing the ETFs, such as VanEck, to educate the SEC about the workings of cryptocurrency markets. “They (the SEC) are eager to learn,” he says, adding that a crypto ETF is just a matter of time.
But the shape and form of that ETF might be different from conventional funds, according to Eric Ervin, CEO of Blockforce Capital, a San Diego-based firm with funds dedicated to blockchain and cryptocurrency.
“It (the bitcoin ETF decision) is probably not going to be straightforward and there will be a number of concessions that the ETF issuer will have to make,” he says.
He has a point.
Already talk of bitcoin ETFs aimed at retail investors has given way to conversations about ETFs targeted at institutional investors. VanEck’s proposal for a bitcoin ETF basket of 25 bitcoins, making it cost-prohibitive for retail investors. “We want to give the opportunity to institutions to trade in this new asset class,” explained Gabor Gurbacs – director, digital assets strategy at VanEck, in a podcast. “A lot of the institutions are uncomfortable trading futures. Hence the ETF.”
But Ervin says ETFs aimed at institutions defeat the purpose of providing access to cryptocurrencies for retail investors. “The beauty of ETFs is that they democratize the investment vehicle,” he says. According to him, the introduction of futures trading at Bakkt will help allay SEC concerns about ETF trading. His firm plans to work with the platform to introduce ETFs based on futures traded there.
Ervin estimates that a retail-focused ETF may be introduced only during the second quarter of next year. “We’d have to see Bakkt futures trade before an ETF based on them likely gets approved,” he says.