With Bitcoin hitting all time highs, multiple countries approving Bitcoin ETFs, a flurry of financial companies vying to offer crypto solutions to institutional investors. It seems only a matter of time before the first US-based Bitcoin ETF is given a green light by regulators. But what is a Bitcoin ETF? And what the heck is taking the US so long to get one approved? And most importantly, is a Bitcoin ETF good for crypto?
Put simply, an ETF, or Exchange Traded Fund, is a security that follows the price of something else and can be bought from your local stock exchange. For example, an ETF can follow the price of an index (like the S&P 500) the price of commodities (like Gold and Silver) or the price of assets, like Bitcoin! Although it seems like a no-brainer, US investors are still unable to purchase Bitcoin through a regulated ETF product.
The downside of this is that many US residents cannot trade Bitcoin on the platforms and markets they are already familiar with.
Bitcoin ETFs do exist in other jurisdictions though. A Brazilian-based fund manager called Hashdex has teamed up with NASDAQ to launch a Bitcoin ETF in Bermuda. And in February 2021, the Purpose Investments Bitcoin ETF gained approval in Canada, becoming the first Bitcoin ETF available in mainland North America that allows investors to hop in and out of the asset as they see fit. It’s available on the Toronto Stock Exchange under the ticker BTCC, where it can be bought with either US or Canadian dollars.
US-based Grayscale, which manages the popular Bitcoin trust fund GBTC tried launching a Bitcoin ETF in 2017, but were rejected by the American Securities and Exchange Commission.
And with the SEC having last year rejected applications from New York based investment firm Wilshire Phoenix, and global investment manager VanEck, Grayscale warned that investors ‘should not assume that such products will ever obtain an approval’. In 2019, when the SEC denied the Bitwise Asset Management company’s ETF application, it said that the application had ‘failed to show that there was a real market for Bitcoin that was isolated from fraudulent and manipulative activity.’ And still in 2021, despite a huge growth in institutional demand for Bitcoin, the SEC continues to cite crypto’s vulnerability to market manipulation as a reason to blanket-reject ETF applications.
SEC commissioner, Hester Peirce, has dissented with the continued rejections handed down by the organization, and believes that the decision should be based on the merits of the assets themselves, and not the exchanges that they are hosted on.
She also voiced disapproval of the SECs ‘stubborn stodginess in the face of innovation’, which is a feeling that most crypto advocates will know very well! With multiple companies launching new applications to the SEC, and the new SEC chairman Gary Gensler at the helm of the organization, 2021 may be the right time for a Bitcoin ETF.
Gary Gensler is a former professor of blockchain at MIT and has already suggested that he’ll seek to safeguard crypto innovation while protecting investors. The SEC under Gensler will likely increase government oversight of the crypto market, but his appointment will also bring some much needed nuance and experience to the discussion. Regulation aside, will the first Bitcoin ETF actually be a good thing for crypto?
The launch of the first US Bitcoin ETF will give additional mainstream legitimacy to Bitcoin. And due to ease of investment, may lead to the increased inclusion of Bitcoin into pension and retirement funds, where a huge amount of capital exists. This will likely be very positive for the Bitcoin price. In other words, it’s still not too late to be early when it comes to buying Bitcoin.