A new mutual fund will allow traders to invest in bitcoin without going through the process of buying the asset itself.
ProFunds on Wednesday launched Bitcoin Strategy ProFund, the first publicly available bitcoin mutual fund in the US, which invests in bitcoin futures contracts. It does not invest directly in bitcoin.
The fund aims to track the performance of the world’s largest digital asset before fees and expenses.
The Maryland-based firm said the new fund eliminates the need for investors to hold their bitcoin through exchanges or wallets and gives them a more convenient way to diversify their portfolios with bitcoin.
“Compared to directly buying bitcoin … ProFund offers investors the opportunity to gain exposure to bitcoin through a form and investment method that tens of millions of investors are familiar with,” company CEO Michael L. Sapir said in a statement.
ProFunds investment vehicle arrives as a wave of financial firms are applying with the Securities and Exchange Commission for approval of a bitcoin ETF.
Currently, there are more than 10 bitcoin ETF applications waiting on the go-ahead from the SEC. The agency has been delaying the approval process, and has maintained that it is “appropriate” to take more time to consider risks and nuances of introducing such a product to the market.
Countries in Europe, as well as Canada and Brazil, already have bitcoin funds available to investors.
Anticipation for a SEC-approved bitcoin ETF is high, but investors shouldn’t hold their breath as it may still be years away from becoming reality in the US.
That’s according to Wilshire Phoenix co-founder William Cai, who has first-hand experience in dealing with the SEC and its bitcoin ETF approval process.
Cai told Insider that he doesn’t expect the SEC to approve a bitcoin ETF until 2022 or 2023, even as more and more fund providers rush to submit their own applications with the regulator.
There are now more than 10 bitcoin ETF applications sitting with the SEC, with Cathie Wood’s Ark Invest the latest fund provider to submit its own application.
“We think they’re all going to get stuck,” Cai said.
The SEC’s rejection of the Wilshire Phoenix bitcoin ETF application in February 2020 gave the fund provider insight into what’s holding up the agency in approving a highly-sought after crypto ETF in the US.
“The major thing is manipulation, and they’re focused on the cash market, [which] is not regulated and does not trade on regulated exchanges,” Cai explained. A cash market is a marketplace in which the commodities or securities purchased are paid for and received at the point of sale.
The SEC is also concerned that cryptocurrencies are a relatively new asset class, and are still in the process of maturing, according to Cai. Bitcoin was created in 2009.
Even though Wilshire Phoenix worked on its bitcoin ETF application when Jay Clayton was Chairman of the SEC, Cai is seeing the same comments pop up in bitcoin ETF extension letters under current SEC Chairman Gary Gensler.
“I’ve seen nothing that suggests there’s been a switch in their thinking,” Cai said.
“Once it became more clear that Gensler was going to be [SEC chairman], to us it was even more of the case that [a bitcoin ETF approval] wasn’t going to happen,” Cai said.
Part of Cai’s view comes from his experience as a trader at JPMorgan when Gensler was head of the CFTC. “He came in, and he totally regulated, to the surprise of a lot of people. He was a really strict, but fair regulator,” Cai said.
Gensler’s current agenda at the SEC also means bitcoin is not a top priority for him for now, according to Cai.
“Gensler has a big item agenda on his plate already, between ESG, Robinhood and meme stocks. A bitcoin ETF is not on his top priority list as far as we can see,” Cai explained.
Still, while Cai is not hopeful that a bitcoin ETF will be approved by the SEC anytime soon, it will eventually happen.
“We believe a bitcoin ETF is good for the market, and it is going to happen,” Cai said, comparing the struggles faced by early bitcoin ETFs to the first gold ETF, which sat in limbo for a while before it was approved by the SEC in 2004.
In the meantime, Wilshire Phoenix is working towards receiving approval for a bitcoin trust that will likely trade on the OTC markets and compete with the popular Grayscale Bitcoin Trust.
In an order putting off approval, the SEC called for public comment on a number of concerns, including whether the bitcoin market is subject to manipulation. The agency similarly asked for public comment in June.
“There’s nothing [in the SEC’s order] that we’re not saying ourselves as an ETF issuer,” Ryan Louvar, general counsel at WisdomTree, told Insider previously. “Bitcoin is volatile. It’s a speculative asset.”
But the SEC now may be warming up to the view, expressed by many bitcoin fund applicants, that not approving a regulated ETF could present its own risks. In Tuesday’s filings – as in previous ones – the agency asked for comment on whether “manipulation concerns … are outweighed by quantifiable investor protection issues.”
“I was encouraged by that step, that the SEC is at least taking incremental steps here,” said Louvar.
SEC Chair Gary Gensler has worried aloud that the bitcoin market, as currently structured, offers no real investor protections or any way to prevent manipulation. That has made some in the crypto industry bearish on the prospects for ETF approval this year.
If you invest in crypto, “ask questions and demand clear answers.” That advice, from former SEC Chair Jay Clayton, is now being put to practice as his successor, Gary Gensler, grills the industry over pending approval of a bitcoin ETF.
Yet as the seven-year quest to get the regulatory go-ahead drags on, some fund managers and crypto executives who spoke with Insider question whether Gensler’s SEC has taken too hawkish an approach.
These bitcoin ETF proponents say common concerns about crypto, like volatility and potential market manipulation, could be said of other asset classes, too. They note that Canada, Europe, and Brazil all have functioning bitcoin funds in circulation. And they argue that repeatedly putting off approval carries its own set of risks.
Anxieties that the bitcoin market may be rife with fraud and manipulation are “a bit of a red herring,” said Will Rhind, CEO of GraniteShares, which filed for a bitcoin futures ETF in 2017.
“There are many markets that are open to manipulation, but that doesn’t stop them from existing or people from launching products in them,” he said, pointing to existing ETFs for penny stocks and oil, long swayed by petrostate cartel OPEC.
Ryan Louvar, general counsel at WisdomTree, which manages several European bitcoin ETFs and has applied for one in America, shares the sentiment. The regulatory standard applied to bitcoin funds has been “very, very high – maybe even novel,” he said.
In WisdomTree’s view – one echoed across much of the industry – the SEC’s slow roll on greenlighting a bitcoin ETF is far from risk-free. As the agency delays, demand for bitcoin and other crypto products is not letting up. The result is that the crypto-curious are left with more dubious avenues for investing their money. On balance, such risks to retail investors ought to outweigh the SEC’s manipulation concerns, Louvar said.
It is a view that the SEC is, at a minimum, curious about. In a call for industry comment last month, the commission asked precisely this question: how should the investor protections brought by regulated bitcoin ETFs weigh against fears of manipulation?
Across the Atlantic, that question has been asked and answered, said Jason Guthrie, WisdomTree’s Europe head. Under the EU’s “passporting” regime – which lets financial-services firms seek regulatory approval in 30 European nations simultaneously – crypto ETFs have multiplied across the continent. Sweden was the first domino to fall, starting in 2015, prompting EU-wide approval. The last major holdout is the UK, tied down by messy Brexit negotiations.
But while Europe’s ETF experience may make the SEC look like a laggard, the broader reality is more subtle, said Guthrie. American regulators have moved proactively to regulate crypto-custodial companies such as Coinbase Custody and Fidelity Digital Assets. For evidence, look no further than the fact that many European-listed crypto ETFs, like those of WisdomTree and ETC Group, use custodians based in America.
Regulators across the world are “looking at different things and at different paces,” said Guthrie.
Nor do all fund managers fault the SEC for taking its time. Some think approving a bitcoin ETF opens the floodgates to all manner of newfangled crypto products.
“It’s not just about bitcoin,” noted Greg King, CEO of Osprey Funds, which runs an off-exchange bitcoin fund. SEC staffers “have to be thinking in the back of their head – how is this going to set a precedent for anything else?”
Leah Wald, CEO of Valkyrie, another bitcoin ETF hopeful, added the SEC is being “deliberate” in combing through an industry that has rapidly matured. She said she wished the process was faster but that the concerns were fundamentally “valid.”
SEC approval may ultimately rest on the industry developing surveillance methods that give regulators a handle on when and where markets are being manipulated, said Chen Arad, COO of Solidus Labs, a monitoring firm that works with regulators.
“Once you open the door, it’s harder to go back. The best thing the industry can do is work on providing assurances through data-sharing agreements and shared surveillance,” he said.
Despite the hesitancy from the SEC, investors have indicated that they’re interested in a crypto-ETF.
A recent Credit Suisse survey found that 33% of financial advisors would prefer to invest in digital asset or cryptocurrency ETFs prior to making direct investments into the asset class. 40% of advisors would prefer crypto exposure via an ETF over directly investing entirely.
Canada has already approved and launched several bitcoin and ether ETFs, but the US is still waiting for SEC approval. Currently the SEC is reviewing at least eight applications for what could be the first cryptocurrency ETF in the country.
Investors and fund managers are longing for the Securities and Exchange Commission’s approval of a bitcoin ETF, but recent comments from Chairman Gary Gensler suggest they best not hold their breath.
Bitcoin ETF applications have been under review by the SEC for months, but regulatory scrutiny remains as the applications await a final decision.
Gensler told Congress last week that “there are many challenges and gaps for investor protection in [crypto] markets,” adding that “none of the exchanges trading crypto tokens has registered yet as an exchange with the SEC.”
His comments suggest that the SEC wants to have more regulatory oversight of cryptocurrencies before it approves a slew of bitcoin etf applications. Current bitcoin ETF applicants awaiting approval from the SEC include Fidelity, WisdomTree, and VanEck, among others.
VanEck’s bitcoin ETF filing was supposed to receive a decision from the SEC on April 28, but hours before the deadline, the agency delayed the decision to June at the earliest.
“I expect that [delay] to happen with all of our filings, to be honest,” Laura Morrison, global head of listings at CBOE, told the Financial Times. Many of the bitcoin ETF applications have picked the CBOE as the exchange to list on.
Enthusiasm for Gensler among the crypto community was strong amid his initial appointment, as he previously taught classes on crypto and blockchain technology at MIT. But Gensler’s depth of knowledge in the crypto-space means he also knows of its potential pitfalls and is concerned about opening the floodgates for investors without proper guard-rails in place.
“[Gensler] wants to see regulation there, and if that happens, it seems like that would be what the SEC needs in order to approve a bitcoin ETF,” Craig Salm, vice-president of legal at Grayscale told the Financial Times. Grayscale operates the Grayscale Bitcoin Trust, which differs from an ETF and trades on the OTC markets.
But some remain optimistic on the chances of approval for a bitcoin ETF, including the CEO of VanEck, Jan van Eck.
“We have a ‘glass half-full’ view of the status of cryptocurrency regulations. Those who oppose a bitcoin ETF are effectively forcing investors into inferior fund structures and less regulated venues,” van Eck told the Financial Times.
Whether the upcoming bitcoin ETF applications are further delayed or approved, will likely be known within a few weeks. Until then, investors who want exposure to bitcoin will have to either buy it directly on a crypto-exchange platform like Coinbase, or settle for the bitcoin trust funds managed by Grayscale and Osprey.
Note: A previous version of this story was corrected to remove an incorrectly paraphrased statement from the CBOE’s Laura Morrison.
The moves expand on the regulatory agency’s review of other potential bitcoin ETFs. The US has yet to approve a cryptocurrency-based ETF. Money management firms are seeking to capture potential gains from exposure to bitcoin, which has been pulling in more interest and activity from institutional and retail investors and companies.
Scaramucci’s SkyBridge is working with investment firm First Trust Advisors on the ETF project and in March filed for regulatory approval. If greenlighted, the ETF would trade on the New York Stock Exchange Arca, which specializes in exchange-traded listings.
Fidelity also in March submitted paperwork to launch a bitcoin ETF to track the digital currency’s performance. If that wins SEC approval, shares of the Wise Origin Bitcoin Trust would trade on Cboe Global Markets.
The SEC in late April said it expected to release its ruling on VanEck’s application on June 17. The agency said it was delaying the decision to take an “appropriate” amount of time for the review. A review period can be extended for up to 240 days.
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.