The Chicago Board Options Exchange has applied with the US Securities and Exchange Commission Monday to list Fidelity’s Wise Origin Bitcoin exchange-traded fund, according to a Form 19b-4.
Fidelity in March applied to launch an ETF to track the performance of bitcoin. The fund will hold bitcoin and value its shares based on prices from major cryptocurrency exchanges such as Coinbase and Bitstamp, according to a regulatory filing.
Cboe’s acknowledgment to be Fidelity’s exchange partner moves the application process with the SEC, CoinDesk first reported.
An exchange partner such as Cboe BZX Exchange or the New York Stock Exchange is necessary to file a Form 19b-4. Only then will the SEC review the application.
The agency will now have to respond with a decision to reject or accept the application within 45 days. The SEC has 240 days to evaluate the application in total.
The SEC in the past has rejected every cryptocurrency ETF that has applied, which now total to nearly a dozen.
Still, experts believe that with the SEC’s new chairman Gary Gensler, who used to be an MIT Sloan School of Management professor teaching blockchain technology, the US will soon have its first-ever cryptocurrency ETF.
“I feel like it’s inevitable. It’s no longer ‘if’ but ‘when’ and I think the question of when is probably in 2021. That’s my prediction,” Dante Perruccio, president international of Wave Financial, a US-regulated digital asset manager, told Insider.
Asset manager VanEck is seeking US regulatory approval to launch an Ethereum exchange-traded fund, with the move taking place as the company waits for word on whether it will be able to introduce trading of the first bitcoin ETF in the US.
The firm said the trust, in aiming to reach its investment objective, will hold ether, the currency native to the Ethereum blockchain network, and value its shares daily based on the reported MVIS CryptoCompare Ethereum Benchmark Rate. Ether is the world’s second-largest cryptocurrency by market capitalization, behind bitcoin.
VanEck and the Cboe are waiting for the SEC to render a decision on whether it can list a bitcoin ETF, which the asset manager applied for in March. The regulator last week delayed a decision until at least July 17, leaving investors waiting on the US to greenlight the country’s first bitcoin ETF.
Wall Street institutions are increasingly embracing or signaling openness to including cryptocurrency into their operations. This week, S&P Dow Jones index announced the launch of three indices tracking the performance of the bitcoin and ethereum – the S&P Bitcoin Index, S&P Ethereum Index, and the S&P Cryptocurrency MegaCap Index.
A Canadian bitcoin exchange-traded fund that has only been trading publicly for three weeks has amassed $832 million ($1 billion Canadian dollars) in assets under management.
The 3iQ CoinShares bitcoin ETF launched on April 19 and is the fastest bitcoin ETF in Canada to reach 1 billion Canadian dollars in AUM, according to a press release. The fund trades on the Toronto Stock Exchange under the ticket “BTCQ.”
The rapidly growing ETF demonstrates that investor demand for bitcoin isn’t slowing down, despite other cryptocurrencies like ether and Dogecoin gaining recent attention. Despite pulling back from it’s all-time-high above $64,000, Bitcoin is still up 97% year-to-date, hovering at $58,000 as of Friday afternoon.
“Reaching $1 billion[CAD] in only three weeks speaks to the enormous market demand for bitcoin,” said Fred Pye, Chairman & CEO of 3iQ. “The pace of its growth is yet another milestone in 3iQ’s goal to provide investors with more ways to gain exposure to the largest digital asset in the world.”
The surge in bitcoin and ether over the past year has helped push Grayscale’s estimated revenue from just two funds it manages to about $1 billion, the same amount Vanguard generates from its entire suite of 82 ETFs, according to a report from ETF.com.
The Grayscale Bitcoin Trust, a semi-closed-end fund that charges a 2% annual fee, generates $756 million in estimated revenue on its $36 billion in assets under management.
When you add in the estimated revenue generated from the Grayscale Ethereum Trust’s 2.5% annual fee and its $10 billion in assets under management, Grayscale’s two funds generate about $1 billion in annual revenue.
“For Grayscale to generate close to a $1 billion from just two products – the amount Vanguard takes in from all 82 of its ETFs – is truly impressive,” ETF.com analyst Sumit Roy said.
Besides the big rally in crypto over the past year, Grayscale benefited from being the only game in town in terms of offering investors the ability to easily add crypto exposure into their brokerage portfolios without having to directly buy bitcoin with a digital wallet.
That years-long exclusivity gave Grayscale the ability to charge a hefty fee relative to most funds and ETFs.
But Grayscale’s dominance in the bitcoin space could see pressure in the coming months as competition increases. Already, the Osprey Bitcoin Trust undercuts Grayscale’s fee by 1.50%, and the SEC is reviewing the approval of several bitcoin ETFs, which could open the floodgates for investors looking too easily add or remove bitcoin from their investment portfolios.
If the SEC does approve one or many of the pending bitcoin ETF applications, it would likely be both cheaper and easier to access for investors relative to the over the counter crypto trust products from Grayscale and Osprey, as the ETFs would be listed on an exchange rather than on the OTC.
But with Grayscale’s multi-year headstart, it could take a long time for asset management companies to chip away at its success.
Bitcoin’s fast-growing popularity, increasingly elevated profile in corporate America and swelling market capitalization above $1 trillion have retail and Wall Street investors alike questioning if and when a bitcoin exchange-traded fund can be traded in the US. Those questions are currently before the Securities and Exchange Commission which is being asked in at least nine applications for the green light to launch what could be the first cryptocurrency ETF in the country.
The arrival of a bitcoin ETF in 2021 would follow this month’s start of trading in shares of Coinbase, the first cryptocurrency exchange to go public, as well as expanding acceptance of bitcoin as payment methods by companies including electric vehicle maker Tesla. Meanwhile, investment bank JP Morgan is preparing to introduce its first bitcoin fund for wealthy clients.
These and other bitcoin developments may signal the increased likelihood that a bitcoin ETF will gain approval, but the SEC has rejected other attempts.
Institutions “are getting in from hedge funds on Wall Street to PayPal, to Venmo, to Visa. So [the SEC] can’t really ignore this because the market is deciding that they want to be involved,” Ian Balina, founder and CEO of Token Metrics, a data-driven cryptocurrency investment research platform, told Insider.
Here are three hurdles and tailwinds that experts say stand in front of the first US bitcoin ETF:
1) Bitcoin volatility
The world’s most widely traded digital asset is well-known for its wild price swings, with gains or losses of 10% during a session not uncommon.
“The SEC has a difficult job balancing the clearly overwhelming desire for the market to have access to BTC via an ETF versus the inherent volatility that the asset class has at this stage in its life cycle,” George McDonaugh, co-founder of digital asset investment firm KR1, told Insider. “Volatility would be one of the major considerations. Bitcoin is very scarce and comparatively still a very young asset class. The volatility should dampen over time but that might be long after the market loses patience waiting for [a bitcoin ETF].”
Liquidity in the bitcoin market had also been a factor under consideration by the SEC.
“I think it’s less of a concern now [than] in the early days … and a lot of that is tied to institutional players coming into and creating depth and breadth in the market,” Matteo Dante Perruccio, president international of Wave Financial, a US-regulated digital asset manager, told Insider. “If it’s 90% retail investors in an asset and you open it up to a bigger universe of retail investors, I think that’s a really hard decision to make as a regulator. But it helps you have substantive institutional investors trading and involved in investing in it.”
“It’s fair to say if you look at the denials for the last several ETFs, you can see that there was concern among several of the commissioners that the bitcoin market was not sufficiently regulated and, in their view, was susceptible to manipulation,” and “when I say that I mean that manipulation would show up in prices,” Amy Doberman, a partner in the securities department at law firm WilmerHale, told Insider.
“I think what you’re going to see with the pending requests for approval is an argument that the market is far more developed than it was four or five years ago and that there’s a lot more price discovery available than there was even just a few years ago so that there will be the ability to reference actual trades and sufficient information to develop accurate prices,” said Doberman.
3) What’s on the SEC’s plate
The US lags behind other countries in approving bitcoin ETFs, with Canada this year approving the first publicly traded bitcoin ETF in North America, the Purpose Bitcoin ETF, as well as ethereum ETFs. Brazilian regulators have reportedly approved two bitcoin ETFs.
“People underestimate the Canadian approval,” said Wave Financial’s Perruccio, characterizing as “close cousins” the SEC’s relationship with the Canadian securities regulator. “The regulators have got to be talking a lot and … you always feel more comfortable in company when you are making these bold decisions,” and Canada’s regulator is considered as well-respected, he said. For a US bitcoin ETF, “I feel like it’s inevitable. It’s no longer ‘if’ but ‘when’ and I think the question of when is probably in 2021. That’s my prediction,” said Perruccio.
While bitcoin ETF applications pile up, the SEC and its new chairman Gary Gensler have a range of other issues they are working on. Gensler, who was confirmed as chairman earlier this month, is seen by some bitcoin ETF proponents as a cryptocurrency advocate stemming in part from his teachings at MIT on the subject.
Gensler “will have to decide what he wants to prioritize,” said Doberman. He’s “obviously very knowledgeable about cryptocurrencies and hopefully will bring an additional level of sophistication and appreciation for the currency to the table,” she said.
While he’s well-versed in the subject of cryptocurrencies, Gensler, who served as a chairman of the Commodity Futures Trading Commission under the Obama administration, will not just wave through bitcoin ETFs applications without scrutiny, said Noah Hamman, CEO of AdvisorShares, a firm that offers actively managed exchange-traded funds through its AdvisorShares Trust.
Gensler will be in the role “of looking at the rules and regs and deciding if either, one, something fits or two, do the rules and regs need to be modified to allow it to fit because it makes sense and it’s the right thing to do,” said Hamman. AdvisorShares does not have a bitcoin ETF filing with the SEC.
The Securities and Exchange Commission said Wednesday it will delay a decision on whether to approve a bitcoin exchange-traded fund from asset manager VanEck, keeping investors waiting to hear when the US will get its first bitcoin ETF.
But the SEC now says it will push back its ruling until June 17.
“The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the comments received,” said J. Matthew DeLesDernier, assistant secretary at the SEC, in a notice Wednesday.
A review period can be extended for up to 240 days.
Bitcoin this month hit a record high near $65,000, coinciding with the public debut of Coinbase, the largest cryptocurrency exchange in the US.
VanEck previously filed for approval of a bitcoin ETF but withdrew the proposal in September 2019.
The SEC last week said it would begin a review of Kryptoin’s application for a bitcoin ETF. Canadian regulators this year have already approved two such funds, as well as an ether ETF.
The first bitcoin ETF in North America has soared past $1 billion in assets under management after just two months in operation, as the crypto boom sends potential buyers piling into the innovative product.
Canada’s Purpose bitcoin exchange-traded fund, with the ticker BTCC, had $1.1 billion (C$1.38 billion) under management as of Tuesday, according to its website.
Its bitcoin holdings have soared over the last month from 13,128.56 on March 12 to 17,493.55 on April 13, crossing $1 billion in value this week. Over that time, the price of bitcoin has risen sharply to hit an all-time high of more than $64,000 on Wednesday.
Regulated financial products such as the Purpose bitcoin ETF have become a key way for investors to access the world’s biggest cryptocurrency, leading to a surge in interest.
Canada became the first major economy to approve a bitcoin ETF in March, with Purpose’s product first to launch. It was an instant success, with more than $165 million in trading volume on the first day.
US regulators are yet to approve a bitcoin ETF and have been historically reluctant to do so. But a number of firms – including Fidelity, VanEck, and most recently Mike Novogratz’s Galaxy Digital – are vying to be the first to launch.
Michael Sonnenshein, chief executive of Grayscale, which runs the biggest bitcoin fund in the world, told Insider in March he thinks it’s a “matter of when, not if” US regulators give the green light.
Growing interest from major institutions has been a key factor in the latest rally in bitcoin, which has more than doubled in 2021. The likes of JPMorgan, Morgan Stanley, Mastercard and Tesla are now getting involved with cryptocurrencies.
Crypto exchange Coinbase’s direct listing on the Nasdaq, due Wednesday, is the latest sign of maturity in the bitcoin market, with talk of a $100 billion valuation.
The submitted S-1 form is an initial registration filing used by companies that intend to publicly register their securities.
Galaxy intends for its ETF to trade on the NYSE Arca, according to the filing. The fund has not yet named an ETF custodian, so it’s likely that amended filings will be submitted in due course. The firm already acts as a sub-advisor to a publicly-traded bitcoin ETF in Canada – the CI Galaxy Bitcoin ETF.
As of March 31, the fund holds about $1 billion in assets under management. Galaxy only lately appointed Alex Ioffe, formerly a finance chief at Virtu Financial, as its new CFO.
Billionaire Mike Novogratz recently said he expects bitcoin to overtake gold’s market value as more institutional players enter the space. “The more people involved in this space, the more big firms, if it’s Tesla, or MicroStrategy, or Goldman, or Morgan Stanley, the more wealthy individuals – the harder it is politically to say ‘hey we don’t like this anymore’,” he said.
But it’s unclear when the SEC might approve any applications, or whether it could happen at all.
SEC Commissioner Hester Peirce, popularly known as the “crypto mom,” has cited a period of leadership transition that’s causing delays. But she is optimistic that SEC Chairman nominee Gary Gensler will mark a turning point for crypto regulation in the US this year.
Grayscale Investments said in a blog post Monday it’s “100% committed” to converting its flagship Grayscale Bitcoin Trust into an exchange traded fund.
The world’s largest digital asset manager confirmed its intent to re-apply with the US SEC to offer an ETF after previous failed attempts to win approval.
“First and foremost we wish to make clear: we are 100% committed to converting GBTC into an ETF,” Grayscale said.
The Grayscale Bitcoin Trust was launched in 2013 and has been the go-to option for investors who want to add bitcoin exposure to their portfolio without directly buying the digital asset.
In the blog post, the investment company said that it always intended for its fund to become an exchange-traded fund when permissible. Grayscale first submitted an application for a bitcoin ETF in 2016 but ultimately withdrew iy because it determined the regulatory environment wouldn’t allow for a bitcoin ETF.
“While several firms have submitted Bitcoin ETF applications in the form of an S-1 or 19b-4 to the SEC, we are confident in our current positioning and engagement with the SEC,” Grayscale said. “Today, we remain committed to converting GBTC into an ETF although the timing will be driven by the regulatory environment.”
Grayscale also said that the management fee of the GBTC fund will be “reduced accordingly” when the trust is converted to an ETF.
According to Fundstrat‘s lead digital asset strategist David Grider, the plan to convert the fund should relieve recent selling pressure on GBTC shares and will re-energize demand from bitcoin investors who are willing to contribute to the GBTC trust again.
“We think this is a very positive move for Grayscale to maintain its position as a leader as the largest listed Bitcoin product and this announcement should help close the negative premium gap,” Grider said in an email.
The Purpose Bitcoin ETF was approved in Canada and launched by Purpose Investments in mid-February on the Toronto Stock Exchange. Since the launch of the fund, bitcoin surged to record highs of more than $61,000 and trades at $59,000 as of Friday afternoon.
“Hitting this milestone so quickly proves that investors are seeking convenient, safe access to cryptocurrencies,” Purpose Investments CEO Som Seif said.
Purpose is already reaping the rewards of being first to market with its bitcoin ETF. A second bitcoin ETF that launched in Canada just one day after Purpose has $85 million in assets under management as of Thursday’s close.
The fund’s management fee of 1.00% is set to generate at least $10 million in annual revenue if fund assets remain above $1 billion. That’s less than half the cost of the popular Grayscale Bitcoin Trust, which charges an annual fee of 2.00% and is now the largest public holder of bitcoin.
The race to launch a bitcoin ETF in the US has been on for years, but the SEC has denied applications from investment firms. The SEC crypto commissioner just admitted that the agency’s refusal to approve a bitcoin ETF has dug them into a “little bit of a hole.”