The approval of a Bitcoin ETF seemed imminent when Gary Gensler became the Securities and Exchange Commission (SEC) chief. In anticipation, several Bitcoin ETF applications were submitted to the agency. Going by Gensler’s recent statements, however, those applications will have to gather dust before his agency takes a look at them.
The SEC Commissioner cautioned investors about Bitcoin markets at a conference recently. “Investors should be aware – I’m saying this is in my own voice – that the underlying Bitcoin cash markets there’s not the robust oversight that you have in the stock market or the derivatives markets,” he told attendees. That assessment follows his agency’s decision to postpone Bitcoin ETFs and his own Congressional testimony in which he criticized cryptocurrency markets.
Taken together, these developments are a sign that the agency is not in a hurry to approve a Bitcoin ETF. Investors in cryptocurrency markets say that an ETF is necessary to shore up liquidity in the ecosystem and prevent wild price swings that wipe out weeks of gains in a single day.
The most recent such instance occurred when a tweet by Tesla CEO Elon Musk sent prices crashing in cryptocurrency markets.
Crypto futures offer some sort of cushion from the volatility of underlying crypto markets.
But they don’t have enough trading volume to influence spot market prices. Their reliance on cash markets, which are still prone to volatility, to set prices also transfers risk from the underlying instruments to derivatives.
Who’s Waiting for a Bitcoin ETF? Not the Cryptocurrency Ecosystem
If crypto players are disappointed with recent developments, they are certainly not showing it. “Personally, I think these things take time,” said Greg King, CEO of Osprey Funds, in an interview with CNBC. He said the Bitcoin ETF was not “a slam dunk” and that the agency would take a “good, hard look” at cryptocurrency markets. “The industry continues to mature with each, passing day but clearly even though we are maturing, we are not still not quite there yet,” Michael Sonnenshein, CEO of Grayscale Investments, told the same channel.
Part of the reason for their patience might have to do with the flow of institutional liquidity into the crypto ecosystem recently. The price surge in crypto prices this past year coincided with the launch of several closed end funds that provide indirect exposure to crypto markets. These funds are mostly structured as trusts that track and mimic the price movements of their underlying cryptocurrency holdings.
Often, they trade at significant premiums and discounts. However, in a risk on environment of low interest rates, their volatility is attractive to investors actively looking for risky investments. The funds offer a convenient method for institutional investors to enter and exit crypto conveniently minus its accompany hazards and custody costs. The Grayscale Bitcoin Trust reported record assets under management last year and Osprey funds, which reopened its Bitcoin Trust amid the cryptocurrency’s spiraling price bump, surpassed $1 billion in assets under management. After making multiple unsuccessful Bitcoin ETF applications, firms like San Francisco – based Bitwise Asset Management pivoted to fund territory and launched index funds to capitalize on hunger for Bitcoin and cryptocurrency funds.
According to research firm Coinshares, crypto fund inflows topped $5 billion last year, up 600% from 2019. Given Bitcoin’s new price records in April, it is likely that they will surge past that figure this year.