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First Trust Submits ‘Buffer’ Crypto ETF to SEC as Gensler Reconsiders Approach

Last updated:

December 15, 2023

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Illinois-based financial services firm First Trust has formally submitted Form N1-A to the US Securities and Exchange Commission (SEC), notifying the agency of its intentions to launch a crypto-backed exchange-traded fund (ETF).

According to the prospectus submitted to the SEC on December 14, the ETF would be called First Trust Bitcoin Buffer ETF and will not be a spot Bitcoin ETF.

Explaining the rationale behind this decision, First Trust revealed that the Fund would participate in the positive price returns (before fees and expenses) of the Grayscale Bitcoin Trust or other ETF-backed crypto product that provides access to the performance of the foremost crypto asset.

Asset manager First Trust has filed with the SEC for a #Bitcoin buffer #ETF intending to help investors mitigate risk by targeting downside protection. pic.twitter.com/FS5pObzMKZ

— Satyam Singh (@Satyams246) December 15, 2023

Providing more details on the ‘buffer’ tag of its Bitcoin ETF application, the firm explained that the ETF would serve as a cushion against the initial 30% of the underlying exchange-traded product (ETP) losses over a target outcome period.

A buffer ETF, also known as “defined-outcome ETFs,” differs from traditional ETF products by offering investors a determined investment outcome while imposing limits on a stock’s growth to protect against market losses.

While other ETF applicants such as BlackRock, Grayscale, Fidelity, and others pursue the spot Bitcoin ETF route, First Trust is setting the pace with its crypto-backed buffer service.

Expect to See Other Entrants After First Trust

In its 32-year record as a financial services firm, First Trust has focused on issuing ETF products and other financial services like investment trusts and mutual funds.

The institution’s recent interest in a Bitcoin ETF represents another significant move by a legacy financial institution in the crypto market.

Bloomberg’s ETF analyst James Seyffart has since reacted to the First Trust Bitcoin Buffer ETF, labeling it a unique strategy in a two-year walkaround dance with the Gary Gensler-led securities agency.

Seyffart also stated that he expects more Bitcoin ETF applicants to go the First Trust route in the coming weeks.

First Trust just filed for a #Bitcoin Buffer ETF. These types of funds protect against a set % of downside loss with capped upside. Expect to see other entrants in the space with unique differentiated strategies offering Bitcoin exposure over coming weeks. h/t @VildanaHajric pic.twitter.com/1qiWF53dM0

— James Seyffart (@JSeyff) December 14, 2023

Meanwhile, Gary Gensler has revealed that the SEC is taking a “new look” at Bitcoin ETF filings following the District of Columbia court intervention. The SEC Chair mentioned that there are currently 10 to 12 spot Bitcoin ETF applications being reviewed by the SEC.

The former MIT blockchain professor also added that the SEC is evaluating every application before giving the nod to a spot Bitcoin ETF.

JUST IN: 🇺🇸 SEC Chair Gary Gensler says they are taking a new look at Spot #Bitcoin ETF's based upon court rulings. pic.twitter.com/mF50rLbrOK

— Watcher.Guru (@WatcherGuru) December 14, 2023

A spot Bitcoin ETF approval is expected between January 10 and 15, 2024, according to James Seyffart.

Okay, we're nearing in on deadline dates for 3 spot #Bitcoin ETF applications. I want to get ahead of it because there's a pretty good chance we'll see delay orders from the SEC. Delays WOULD NOT change anything about our views & 90% odds for 19b-4 approval by Jan 10, 2024 pic.twitter.com/LE7sOlHAHM

— James Seyffart (@JSeyff) November 14, 2023

Additionally, asset management firm BlackRock submitted an in-kind “prepay” redemption model to the SEC for its spot Bitcoin ETF application on November 28.

According to BlackRock, this new model will make it easier for traditional financial institutions to hold Bitcoin on their balance sheets and for shareholders to buy its shares using traditional fiat currencies.

Blackrock’s amended filing suggest regulators want cleaner link to on chain activity for Broker Dealers.

Here is there revised filing with “See Spot Run” example of differences.

Original In-Kind Model (using an analogy):
Imagine you’re at a farmers’ market (the ETF market) with… pic.twitter.com/HXquHODRrM

— Thomas Young (@tomyoungjr) November 30, 2023

The model is also expected to provide “superior resistance to market manipulation,” which has been a major concern with the SEC in recent years.