Not Ideal, but ‘Better Than Nothing’ – Market Awaits ‘Paper Bitcoin’ ETF
US Securities and Exchange Commission (SEC) Chair Gary Gensler has reiterated that he welcomes applications for bitcoin (BTC) futures-backed exchange traded funds (ETFs), but with no words on the prospects for a “physically”-backed ETF. However, analysts seem to agree that a futures-backed “paper bitcoin” ETF could still be useful.
Speaking during an asset management conference hosted by the Financial Times on Wednesday, the SEC Chair pointed out that a number of mutual funds already invest in bitcoin futures traded on the Chicago Mercantile Exchange (CME).
“We’ve started to see filings under the Investment Company Act with regard to exchange-traded funds (ETFs) seeking to invest in CME-traded bitcoin futures,” Gensler further said, adding:
“I look forward to the staff’s review of such filings.”
The indication of support for a futures-based bitcoin ETF this week comes after Gensler in early August first said he was open to reviewing bitcoin ETF proposals, ”particularly if those are limited to these CME-traded bitcoin futures.”
Based on filings that have been made with the SEC so far, five ETF proposals appear to meet the requirement of investing in futures contracts, and not in “physical” bitcoin:
- ProShares Bitcoin Strategy ETF
- Invesco Bitcoin Strategy ETF
- VanEck Bitcoin Strategy ETF
- Valkyrie Bitcoin Strategy ETF
- Galaxy Bitcoin Strategy ETF
The expected decision dates for the ETFs range from October 18 for ProShares’s proposal, to November 1 for Galaxy’s bid.
And although not the bitcoin and crypto space’s top choice for an ETF, analysts at Ecoinometrics still said that “a bitcoin ETF based on futures is better than nothing.”
1/ A #Bitcoin ETF based on futures is better than nothing.— ecoinometrics (@ecoinometrics) September 30, 2021
But what we really want is an ETF backed by actual #BTC.
That's what's needed to soak up coins from the market and make the active supply more tight. https://t.co/1hB9gfofFn
Elaborating on the differences between a “physically”-backed ETF and one backed by futures contracts, Ecoinometrics wrote in a report that a futures-backed ETF – known as “paper bitcoin”– would be “very unlikely to have much impact” in terms of the available supply of actual bitcoins.
However, such an ETF could still be useful, especially because it “simplifies a lot of things for institutional investors from a regulatory standpoint,” the analysts noted, adding that it also makes buying bitcoin as part of an existing investment portfolio “totally straightforward.”
In the past, several fund managers have expressed skepticism towards a futures-backed bitcoin ETF, with for instance Matthew Sigel, head of digital assets research at VanEck, telling Bloomberg in August that these types of products have lagged bitcoin in price while also being more expensive to manage.
“We see bitcoin futures-based funds as inferior products,” Sigel said at the time.
At 14:31 UTC, BTC trades at USD 43,241 and is up by 2% in a day, trimming its weekly losses to less than 1%.
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