- Prospective Bitcoin ETF issuers face several SEC hurdles.
- Nate Geraci, the president of the ETF Store and an outspoken advocate for a Bitcoin product, told Business Insider about what it would take to clear these roadblocks.
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It was in 2013 that Cameron and Tyler Winklevoss first tried to bring a Bitcoin exchange-traded fund (ETF) to market.
Seven years later, and after many attempts from other issuers like Bitwise and VanEck SolidX, all have been stymied by the Securities and Exchange Commission (SEC). Nothing has come to fruition.
Still, they will all keep trying.
“We believe in and remain committed to the ETF,” Cameron Winklevoss, president of Gemini, said in a statement Wednesday sent to Business Insider.
“We understand the SEC’s concerns and the need to get it right. With that said, while the approval process is pending, we’ve built our platform so that accessing bitcoin is simple and secure for retail and institutional investors alike.”
And they’ve got good reason to do so: some experts say it’s only a matter of time now until a Bitcoin ETF is approved.
Nate Geraci, the president of the ETF Store and an outspoken advocate for the allowance of a Bitcoin ETF product, is one of them. He told Business Insider on Monday that he thinks an ETF will make it to market in 2021 — and potentially before the end of the year.
“My sense from talking to prospective Bitcoin ETF issuers is that they feel like the SEC is engaged on this issue and there is open dialogue going both ways, but I don’t sense that the issuers feel like approval is imminent,” Geraci said.
“And if you look at some of the comments that have come from both the SEC and prospective ETF issuers, they have been less than encouraging recently. I wouldn’t rule out approval at the end of this year. I think 2021 is looking more likely as we sit here today.”
One reason Geraci is optimistic is that demand for such a product is surging. He points to the massive influx of cash into the Grayscale Bitcoin Trust (GBTC) in recent months as an example.
“If GBTC were an ETF, it would be in the top 10% of ETFs by assets with over $3.5 billion, and I think that proves the investment case,” Geraci said. “I think it proves investor demand around a Bitcoin product. GBTC took in over $750 million just during the second quarter, which is remarkable.”
Options trading Hurdles a Bitcoin ETF would have to overcome
But before a Bitcoin ETF might be realized, there are several hurdles prospective issuers of the product face.
The SEC has said it has concerns over two things: fraud, as they argue the price of Bitcoin can be manipulated on unregulated foreign markets; and surveillance, as they say don’t have the ability to look into price manipulation.
It may also be a matter of who is in charge. Current SEC Chairman Jay Clayton has made his skepticism toward a Bitcoin ETF known.
He told CNBC in Sept. 2019 that although a prospective ETF was closer to meeting his criteria, there was work left to be done. One key question, he added, was how the regulator would know that prices are not being significantly manipulated.
But critics of the SEC’s stance on this, including Geraci, say assets like oil are manipulated by foreign entities like OPEC. Also, Bitcoin futures trading has already been approved by the Commodity Futures Trading Commission (CFTC).
“If you look at some of the other exchange-traded products that exist, the markets don’t seem that much more evolved in my opinion,” Geraci said.
He added: “A good example would be BDRY. This is an ETF that owns freight forward futures contracts — and as a matter of fact VanEck and SolidX, in their argument to the SEC on approving their prospective Bitcoin ETF, pointed to BDRY as precedent for approving a Bitcoin ETF because they said ‘look, the Bitcoin market is every bit as robust as the freight futures are’.”
Crypto advocates say nominating Hester Pierce, a commissioner at the SEC who has publicly criticised the SEC’s opposition to a Bitcoin ETF, to the agency’s top job would smooth the path for the creation of the financial product.
Options trading “Outside of owning Bitcoin direct, I don’t think there are a whole lot of good options”
One reason Geraci advocates for a Bitcoin ETF is what he says is a current dearth of options.
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“Outside of owning Bitcoin direct, I don’t think there are a whole lot of good options. They can invest in GBTC, but again that can trade at a premium…They could buy Bitcoin futures contracts, but I cannot recommend that most retail investors should be gambling in the futures market, but theoretically that would be another option. There is an ETF that owns GBTC — ARK Next Generation Internet ETF (ARKW), but that’s a small percentage of the overall holding,” he said.
Convenience is another factor. In addition to having consolidated tax records and the ability to have investments in one brokerage, Geraci says a Bitcoin ETF would allow investors access to the crypto currency without having to store it and secure it.
“The best example is gold and gold ETFs. Gold ETFs are highly popular. And if you look at performance of gold ETFs this year, they’ve already surpassed their annual record, and what that tells you is some investors don’t want to own physical gold bars, they don’t want store them, they don’t want to insure them, they don’t want to hassle with selling those physical gold bars if they want to move back to cash,” Geraci said.
“And so what do they do? They look to a gold ETF for that convenience. That is a perfect corollary to Bitcoin.”
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