Ask any crypto enthusiast to name one thing they would like to see most in the digital asset industry.
You will find that the answer is a resounding, ‘Bitcoin ETF’.
The prospect of an SEC-approved Bitcoin ETF is widely perceived as the trigger for mass adoption of digital assets, and many believe it would render Bitcoin a legitimate investment - on par with stocks and physical commodities.
Even JPMorgan declared in February that a Bitcoin-based ETF would be a “holy grail for owners and investors.”
Since 2013, the SEC has steadfastly dismissed a string of Bitcoin ETF filings - rehashing the usual arguments with each rejection that the market is too immature and easily manipulated.
But thanks to a rising number of firms providing services mirroring the traditional finance world, such as custody and prime services, the digital asset sector is demonstrating increased maturity. And as a result, pressure is mounting on the SEC to give a Bitcoin ETF the green light.
The most recent attempt to introduce a Bitcoin exchange-traded fund came from New York-based asset manager, WisdomTree Investments, in late June.
In its filing, the asset manager declared it is looking to invest in energy, industrial metals, precious metals, and agriculture commodities, along with a vehicle that invests a maximum of 5% of its assets in CME Bitcoin futures contracts. This latter part is very intriguing, primarily because the SEC has rejected an ETF with only a 25% Bitcoin component before - but how about just 5%?
Recent events indicate there is good reason to believe that the SEC may be budging from its hardline stance on crypto.
The first domino to fall that could have an enormous impact on the industry (for better or worse), is the recent announcement that SEC Chairman, Jay Clayton, is stepping away from his role.
Over his past three years in office, Clayton has been somewhat tough on crypto, rejecting over a half a dozen Bitcoin ETF applications and clamping down hard on altcoin projects and exchanges.
Many market participants are arguing that his departure will be beneficial for the industry and are pinning hope that his replacement will be more open minded about cryptoassets. Billionaire investor and CEO of Galaxy Digital, Mike Novogratz, recently declared: “Have to think Jay Clayton leaving the SEC is good for BTC. Makes ETF more likely. Let’s hope his successor is a futurist.”
Other recent news painting a peachier outlook for WisdomTree and other future applicants is the announcement by the SEC on 6 July outlining new guidelines relating to the processing timeline of applications filed by the companies seeking listing. The new rules make it faster and easier for investment firms, especially crypto ETFs, to achieve listing-related compliance.
The SEC’s most surprising move also came on the same day, when Los Angeles-based cryptocurrency Fund, Arca US Treasurey Fund, became the first digital asset-related fund that the SEC passed since the Investment Company Act of 1940 was implemented.
This landmark approval and the newly voted amendments all represent positive winds of change in the notoriously crypto-skeptic SEC.
No one knows what the future holds, although it is seen as somewhat inevitable that investor demand will eventually tip the scales in Bitcoin’s favour. That said, institutional activity in crypto markets continues to thrive – in spite of the absence of a Bitcoin ETF.
This is corroborated by a recent study by Copper, which found that Bitcoin’s correlation with traditional markets signals the presence of more sophisticated investors in the space than is generally assumed. It is also evidenced by Grayscale’s Q1 and recently published Q2 report. In the second quarter of 2020, Grayscale reported raising approximately $906 million across its suite of digital asset products – nearly doubling its previous high from the first quarter of 2020. No doubt an impressive feat considering the sector is yet to witness cohesion and consistency around regulation and legal framework.
However, the availability of new institutional-grade platforms such as Copper's ClearLoop and Catalyst , ease many of the risks associated with the trading and management of cryptoassets - making it safer and easier for accredited investors to take a position in digital assets.
Indeed, many highly regarded investors from the traditional space have already announced that they are devoting a small amount of their overall portfolio to cryptoassets. The most famous recent example is investor Paul Tudor Jones, who to the astonishment of many, declared that he believes Bitcoin is going to be ‘the fastest horse in the race’.
With an array of investment options already available to accredited investors, an SEC-regulated Bitcoin ETF would certainly offer institutional investors another gateway to cryptoassets - but it will be one of many, and far from the be-all, end-all.
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