This year has been another rough one on the bitcoin ETF regulatory front as U.S. regulators still have yet to approve ETFs linked to the largest cryptocurrency.
Earlier this year, the Securities and Exchange Commission (SEC) nine Bitcoin-based exchange-traded fund (ETF) applications got the thumbs down from the Securities and Exchange Commission on Wednesday, preventing the digital currency from gaining more acceptance from investors who are wary of the unregulated exchanges of cryptocurrencies. The SEC’s Division of Trading and Markets rejected applications from investment firms ProShares, Direxion and GraniteShares.
The SEC stated, “Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.’ That failure is critical because, as explained below, the Exchange has failed to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, and therefore surveillance-sharing with a regulated market of significant size related to bitcoin is necessary.”
With just three months left in 2018, market observers are pointing to 2019 as the earliest a bitcoin ETF will come to life in the U.S. Some insist it will take a physically backed fund to garner approval from regulators.
No Futures?
Some crypto market observers believe a bitcoin ETF, assuming such a product is approved, will not be based on futures linked to the digital currency.
“After reviewing every single Bitcoin ETF proposal in the last two years, I’m quite confident that any Bitcoin ETF based on Bitcoin futures will be rejected. The first Bitcoin ETF the SEC will approve will be physically backed,” reports CryptoSlate.
Bitcoin futures debuted on the Chicago Board Options Exchange (CBOE) in December with CME Group following suit just a few days later. The derivatives linked to the largest digital currency by market value are seeing a steady rise in activity.
Derivatives help increase liquidity and improve markets for an asset category by allowing investors to bet on ups and downs of an asset, evening allowing individuals to adopt market-neutral strategies.
Nasdaq Inc. is still considering entering the bitcoin futures competition. Market observers previously expected Nasdaq to launch futures on the digital currency this year. The exchange operator has previously said that if it moves forward with bitcoin futures, its product will be different from those offered by Cboe and CME.
Some crypto experts believe there are advantages to the physically-backed structure for bitcoin ETFs.
“When an ETF wants to create new shares of its fund, it turns to someone called an authorized participant (AP) for help. An AP is just a fancy name for someone who is responsible for purchasing the underlying assets an ETF wants to hold. APs require a license from the ETF provider and are typically financial institutions with a lot of purchasing power,” according to CryptoSlate. “For Bitcoin ETFs, the APs have the option of sending over baskets of cash instead of Bitcoin. This is simply for convenience as many APs don’t want to purchase Bitcoin and hold on to it themselves.”
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