Cryptocurrency enthusiasts and investors want to take advantage of the rising popularity of exchange-traded funds (ETFs), one of the two hottest investing categories. The biggest change for this sort of linkage is the prospect of a bitcoin-tracking ETF.
However, attempting to create the first bitcoin ETFs has been fraught with difficulties. The reason for this is that bitcoin, the world’s most valuable cryptocurrency by market capitalization, is still mostly uncontrolled. The Securities and Exchange Commission (SEC) is also wary of allowing an ETF centered on the nascent and mostly untested cryptocurrency sector to be sold to the general public.
What is a Bitcoin ETF?
An exchange-traded fund (ETF) for bitcoin is an investment instrument that tracks the performance of a single asset or a group of assets. It allows investors to diversify their portfolios without actually owning the assets. ETFs are a simpler option for buying and selling individual assets for those who want to focus on profits and losses. Because the ETF isn’t directly invested in bitcoin, holders won’t have to worry about the complicated storage and security protocols that cryptocurrency investors must follow.
A bitcoin ETF matches the price of the world’s most popular digital currency. As such, it might be a smart method to invest in bitcoin as the security precautions involved with owning bitcoin and other cryptocurrencies are not required of investors. In this procedure, there is no need to deal with bitcoin exchanges. If an investor believes the underlying asset price will fall, they can sell shares of the bitcoin ETF short.
The ETF Trials
Regulatory bodies have hindered companies attempting to create bitcoin ETFs. Cameron and Tyler Winklevoss, most known for their role in Facebook (FB) and, more recently, for their Gemini digital currency exchange, petitioned to create the Winklevoss Bitcoin Trust, a bitcoin ETF, rejected by the SEC in 2017. The decision was based on the fact that bitcoin is traded on mostly unregulated exchanges, making it vulnerable to fraud and manipulation. Similarly, Cboe Global Markets (CBOE), the exchange behind bitcoin futures, believed that the SEC would allow digital currency-related ETFs as well.
Jay Clayton serves on the One River Asset Management board, which has filed a registration statement for the One River Carbon Neutral Bitcoin Trust. It’s the latest attempt to get permission for an elusive Bitcoin ETF, following the rejection of three prior proposals under Clayton’s tenure, as well as the latest in a long line of products touting their environmental credentials.
Under SEC Chairman Gary Gensler’s four-year tenure, attempts to obtain clearance for a Bitcoin ETF were repeatedly denied attempts to obtain clearance Moreover, despite protests from activists both inside and outside the financial services industry, the commission failed to act on ESG disclosure regulations and actively attempted to undercut that sector’s pace with a proposal to limit ESG assessment in retirement accounts.
Jay Clayton, the former SEC head, is the newest in a long line of ex-public officials who have moved into private companies. Before leaving their positions at federal agencies, Ben Lawsky and J. Christopher Giancarlo were active with Bitcoin. The public is concerned that professionals who drafted the regulations would have an intimate awareness of the loopholes, giving them an unfair commercial advantage.
According to a source at the Commodities Futures Trading Commission, the chances of a bitcoin ETF getting authorized in 2022 are “90 percent at this moment.” Hopefully, no incident happens in the future that might affect the chances of ETF approvals so that the percentage can stay as it currently is. If and when the first bitcoin ETFs are introduced, they are expected to be a big hit with both cryptocurrency enthusiasts and traditional investors. As a result, the increase of bitcoin may assist in stimulating rises in other digital currencies.
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