Market Volatility Doesn’t Help Spot Bitcoin ETF Applications

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  • The SEC’s dead­lines to rule on spot bit­coin ETF pro­pos­als by Bit­wise Asset Man­age­ment and Grayscale Invest­ments fall in the first week of July
  • The col­lapse of LUNA and the ongo­ing sell-off could impact regulator’s deci­sion on the pro­posed prod­ucts, Bit­wise CIO Matt Hougan says

As the SEC gets set to rule on two spot bit­coin ETF appli­ca­tions with­in the next two weeks, the chief invest­ment offi­cer at Bit­wise Asset Man­age­ment said ongo­ing volatil­i­ty in cryp­to mar­kets could impact the regulator’s deci­sion on such products.

Cryp­to index fund issuer Bit­wise, which man­aged $1.2 bil­lion in assets as of March 31, expects an SEC deci­sion for its pro­posed spot bit­coin ETF by July 1. 

The reg­u­la­tor has until July 6 to rule on Grayscale Invest­ments’ appli­ca­tion to con­vert its bit­coin trust (GBTC) to an ETF. GBTC, which has $13.3 bil­lion assets under man­age­ment, has trad­ed at a dis­count of about 30% in recent weeks. 

No spot bit­coin ETF has ever been approved in the US, and a num­ber of indus­try watch­ers do not expect one to launch until 2023 at the earliest.

Bit­wise CIO Matt Hougan told Block­works that the SEC has his­tor­i­cal­ly con­sid­ered the state of the cryp­to space more broad­ly when con­sid­er­ing spot bit­coin products. 

“While that’s not the tech­ni­cal decid­ing point on spot bit­coin ETF appli­ca­tions, it’s of course the case that reg­u­la­tors would con­sid­er the entire envi­ron­ment when eval­u­at­ing an appli­ca­tion like this,” he said. “Things like the col­lapse of LUNA is not a great news item for the cryp­to indus­try and will prob­a­bly at least enter into the minds of reg­u­la­tors as they review that.”

But Hougan not­ed that ProShares’ launch of an ETF bet­ting against bit­coin on Tues­day is a pos­i­tive sig­nal that the SEC is on a path to even­tu­al­ly approve a spot ETF. The ProShares Short Bit­coin Strat­e­gy ETF (BITI) seeks dai­ly invest­ment results that cor­re­spond to the inverse of the dai­ly per­for­mance of the S&P CME Bit­coin Futures Index.

“That is a sign of the SEC becom­ing more com­fort­able with the space and sort of fol­low­ing a crawl-walk-run strat­e­gy,” Hougan said. “The ques­tion in everyone’s mind is when will they get to the run part.”

A Grayscale spokesper­son told Block­works that the firm is also encour­aged by the SEC’s con­tin­ued accep­tance of bit­coin exchange-trad­ed prod­ucts (ETPs), such as BITI, call­ing a spot bit­coin ETF “a nat­ur­al next step.” 

Grayscale CEO Michael Son­nen­shein said in a Twit­ter post on Tues­day that reg­u­la­tors have repeat­ed­ly shared con­cerns about the matu­ri­ty of crypto’s under­ly­ing mar­kets and their poten­tial for fraud and manipulation. 

“How could one inter­pret BITI com­ing to mar­ket as any­thing oth­er than fur­ther acknowl­edg­ment of bitcoin’s matu­ri­ty?” the CEO tweet­ed. “Bitcoin’s price dis­cov­ery is sup­port­ed by not only a healthy two-sided mar­ket that under­pins mul­ti­ple long prod­ucts, but also a deriv­a­tives mar­ket robust enough to offer short expo­sure to retail investors.”

SEC Com­mis­sion­er Hes­ter Peirce said dur­ing the Reg­u­la­tor Trans­paren­cy Project’s June 14 con­fer­ence on reg­u­lat­ing cryp­to that she is dis­ap­point­ed that “the SEC has not used more proac­tive­ly the author­i­ties it already has to sen­si­bly reg­u­late crypto.”

Peirce, who has been an out­spo­ken advo­cate for a spot bit­coin ETF over the past year, added that the agency’s fail­ure to approve one is “puz­zling,” not­ing that the SEC sub­jects bit­coin-relat­ed prod­ucts to “a more exact­ing stan­dard” that it applies to oth­er offerings. 

Bitwise’s pend­ing fil­ing is its sec­ond attempt to launch a spot bit­coin ETF. The San Fran­cis­co-based com­pa­ny had filed for one in 2019 but with­drew its request in Jan­u­ary 2020 amid reg­u­la­to­ry con­cerns. Bit­wise refiled last Octo­ber, includ­ing 150 pages of research with­in the appli­ca­tion focused on price dis­cov­ery in the cryp­to markets. 

While Son­nen­shein has said pub­licly that Grayscale would con­sid­er suing the SEC if its pro­pos­al to con­vert GBTC to an ETF was denied, Hougan said Bit­wise will like­ly stick with its research-cen­tric approach.

“The SEC is clear­ly engaged in this space and they’re ask­ing good ques­tions,” Hougan said. “In the case they dis­ap­prove our appli­ca­tion, we’ll have to see what the con­tent of that dis­ap­proval is and whether there’s a rea­son­able research path­way to answer it or not.”


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  • Ben Strack
    Ben Strack is a Den­ver-based reporter cov­er­ing macro and cryp­to-native funds, finan­cial advi­sors, struc­tured prod­ucts, and the inte­gra­tion of dig­i­tal assets and decen­tral­ized finance (DeFi) into tra­di­tion­al finance. Pri­or to join­ing Block­works, he cov­ered the asset man­age­ment indus­try for Fund Intel­li­gence and was a reporter and edi­tor for var­i­ous local news­pa­pers on Long Island. He grad­u­at­ed from the Uni­ver­si­ty of Mary­land with a degree in journalism.

    Con­tact Ben via email at [email pro­tect­ed]

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