Bitcoin prices are near $44,000 and excitement is pouring into the space again. That’s largely due to the focus on the potential launch of spot bitcoin ETFs in January. Here is an update on what we know so far and what this could mean for the crypto ETF world. This includes crypto equity ETFs, which have fallen out of favor despite significantly high YTD returns.
- Spot bitcoin ETFs will potentially be launched in a month. The Ark 21Shares Bitcoin ETF’s (ARKB) final approval deadline with the SEC is January 10. It is widely expected that the SEC will approve its application (along with spot bitcoin ETF filings).
- The SEC has been active in its discussions. For the past few weeks, the SEC has been commenting on issuer filings and issuers have been updating their S-1s. While this is a normal part of the filing process, it illustrates that there has been progress toward approval.
- SEC has also met with issuers to discuss regulatory specifics. More recently, the SEC has met with issuers like BlackRock and Grayscale. Topics focused on regulatory specifics like BlackRock’s proposed in-kind creation and redemption model (where investors can redeem shares directly for bitcoin). The SEC has pushed for a cash creation and redemption model, which is safer from a regulatory standpoint. BlackRock has made some revisions to its model but has kept it as an in-kind model. While there may be some continued back-and-forth discussion, I don’t think this will be a huge roadblock to approval by January.
- There are currently about 13 issuers in line for a spot bitcoin ETF. These include conversions like the Grayscale Bitcoin Trust (GBTC) and strategy changes like the Hashdex Bitcoin ETF (DEFI) in addition to 11 new filings and refilings. Most of these issuers are already active in the crypto ETF space. They either have a bitcoin or ether futures ETF product or a crypto industry ETF product.
- While the spot bitcoin ETF market seems oversaturated, several large issuers are missing. ProShares, which has been well-known in the crypto space for its Proshares Bitcoin Strategy ETF (BITO) has not filed for a spot bitcoin ETF. Other crypto equity ETF issuers like First Trust, Schwab, and Amplify also have not filed for a spot bitcoin ETF. The reasons are unclear but could have to do with resources (staff, time, funds) for spot bitcoin ETFs (similar to commodities) versus resources for equity ETFs. Issuers may also not want to cannibalize their own products.
- Crypto equity ETFs seem to have been forgotten but are the top-performing ETFs of the year. Prior to the release of BITO and its other bitcoin futures ETF peers, ETF investors were using industry crypto or thematic blockchain ETFs to access the cryptomarket. Currently, the top 10 sector ETFs YTD are all crypto or blockchain thematic ETFs. The Valkyrie Bitcoin Miners ETF (WGMI) has been a top performer, returning over 200% YTD. It has been followed closely behind by the VanEck Digital Transformation ETF (DAPP). These ETFs have been performing well since the beginning of the year due to lower prices at the end of 2022, particularly after the FTX fallout. Toward the end of 2023, these ETFs have seen even higher prices. That has been due to bitcoin prices rising on positive news from spot bitcoin ETFs.
- The biggest selling point of many crypto equity ETFs has been a close correlation to bitcoin prices. The funds all boast other advantages like supporting the digital disruption megatrend. But the blockchain story is still vague and foreign for many investors. And many of the individual stocks (particularly the miners) are volatile stocks.With crypto equity ETFs, the correlation with bitcoin prices is much higher than it is for crypto stocks and bitcoin prices. These ETFs may not be as good of a proxy for bitcoin prices after the launch of spot bitcoin ETFs. But they will still serve as high-risk/high-return options for investors who may want to capture potential large returns related to the cryptomarket.
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