Are Bitcoin ETFs on the Horizon?

Rakesh Sharma  |


The Chicago Board Options Exchange (Cboe) has again filed an application with the SEC to list and trade bitcoin ETFs. The application, which is for VanEck SolidX Bitcoin Trust, was filed in the last week of June. This is the Cboe’s third attempt to get the federal agency to approve a bitcoin ETF. Its earlier attempts were turned down by the SEC, which highlighted its concerns about a bitcoin ETF in a January letter.

The VanEck SolidX Bitcoin Trust proposal addresses some of those concerns. One of them is the transparency of bitcoin prices in opaque crypto markets controlled by algorithms and, according to some reports, by bitcoin whales. “The Sponsor expects that the dissemination of information on the Trust’s website, along with quotations for and last-sale prices of transactions in the Shares and the intra-day indicative value (“IIV”) and net asset value (“NAV”) of the Trust will help to reduce the ability of market participants to manipulate the bitcoin market or the price of the Shares and that the Trust’s arbitrage mechanism will facilitate the correction of price discrepancies in bitcoin and the Shares,” the company wrote in its filing.

The filing document also expects demand from institutional investors will “broaden” investor base and have a negative effect on the possibility of collusion among market participants. While it mentions the need for custody, the filing does not provide much detail on the process of ensuring security. Discussion of the topic is restricted to mention of “cold storage wallets” or use of computers disconnected from networks of any kind.

Will It Make A Difference?

Several trading venues and crypto startups have attempted to get the SEC to approve bitcoin ETFs over the years. The Winklevoss twins were the first to propose such an offering back in 2013. But their applications have been rejected by the SEC multiple times since.

Most concerns about bitcoin ETFs are related to their safety and security as an investment instrument in what is largely an unregulated industry. Not much is known about the operational details of cryptocurrency exchanges, which provide the base price for bitcoin futures and ETFs. The volatility of cryptocurrency markets, which is reflected in the wild price swings of funds that are based off them, is another problem. The performance of Bitcoin Investment Trust’s  (GBTC) fund is a case in point. This latest attempt by Cboe will sustain pressure on the SEC to approve a bitcoin ETF.

Much has changed since the Winklevoss’s initial application. Cryptocurrencies have gained widespread traction as investment instruments in the last year. The ecosystem for cryptocurrencies has expanded to include custody solutions by notable players. Institutional investors are also said to be chomping at the bit to gain access to one of the best-performing assets in the last year. Exchanges in Europe have already begun trading bitcoin ETFs.

Taking note of these developments, the SEC may be softening its stance. The agency passed a resolution at the end of June to lower requirements for launching an ETF. According to a Reuters report, the rule change will allow companies to launch “plain vanilla” versions of their ETFs. Todd Rosenbluth, director of ETF and mutual fund research at CFRA, told the news agency that the change will “support new ETF launches, particularly tied to long-term thematic approaches, from small independent asset managers.”

DISCLOSURE: I own 0.001 bitcoin.


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Companies

Symbol Name Price Change % Volume
GBTC Bitcoin Investment Trust 8.85 0.76 9.39 2,401,425

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