Over 3 years ago, in 2013, the company of the Winklevoss twins, Cameron and Tyler, Winklevoss Capital Management LLC, launched the very first proposed bitcoin ETF, the Winklevoss Investment Trust, seeking to trade on the HFT-dominated BATS exchange. The SEC is anticipated to create a decision upon it by March. A 2nd group, SolidX Partners followed last July seeking SEC approval for its bitcoin 401k, SolidX Bitcoin Trust, which will be listed on the NYSE.
Then on Friday, Grayscale Investments, a unit of Barry Silbert’s Digital Currency Group filed together with the SEC to list out its unique Bitcoin Investment Trust in the Ny Stock Exchange: much like the prior two attempts, the fund hopes to obtain SEC approval to expand the viewers to the virtual currency. Initially, the trust will seek to launch with $500 million, the filing said, although the target is at the mercy of change. At Dec. 31, it had about 1.8 million shares outstanding. Based upon a net asset value of $89.39 a share, its assets under management totaled $164.2 million.
Because the WSJ notes, “Grayscale’s Bitcoin Investment Trust, first launched in 2013, already trades on OTC Markets Group Inc.’s over the counter exchange, OTCQX. Using the new filing if approved, the trust would operate being a traditional ETF, which means that specialized traders would create and retire shares depending on demand.”
Two Wall Street firms, KCG Holdings Inc. and Wedbush Securities Inc., have been in discussions to serve as authorized participants, according to the filing. Additionally, the fund’s trustee is going to be Delaware Trust Co., along with the transfer agent is going to be Bank newest York Mellon Corp., depending on the filing.
The aim of a bitcoin-based ETF is usually to provide an product that would be easier for investors to gain access to and would mute at least several of bitcoin’s volatility, while it would hardly eliminate everything, which could still make it a riskier investment than the majority of ETFs.
More importantly, approval “could prove a young test for how an SEC run by way of a Donald Trump appointee will greet innovations which may raise investor-protection or any other market-structure issues.” Furthermore, some great benefits of being first on a major exchange could possibly be big, assuming that bitcoin does manage to establish itself as a viable asset class. The SPDR Gold Shares ETF launched Nov. 18, 2004, has $31 billion in assets. The iShares Gold Trust ETF launched Jan. 21, 2005, has $7.7 billion in assets. Gold, a commodity not backed by any particular government, interests investors for some of the same reasons as bitcoin… even when many physical hard-core “gold-stacker” fans mock both the very idea of a paper gold representing their physical holdings, while relentlessly ridiculing the idea that “digital money” incorporated into a server somewhere, is at all safe (following recent dramatic breaches of the Chinese bitcoin exchange, these people have a point).
Earlier this month, Needham analyst Spencer Bogart wrote that “it appears there may be significant pent-up demand in the investment public for this sort of vehicle” although he conceded that “the probability of one being approved in 2017 was very low, expecting the SEC could possibly be cautious about such a risky asset.”
Indeed, as among the lawyers who helped craft the application form for what is definitely the first-ever bitcoin exchange-traded fund (ETF) told Coindesk, he is doubtful the SEC will approve such a request any time in the future. The critique, thanks to former Gemini general counsel David Brill, is extremely relevant as his old employer’s last and final deadline to get approval for the experimental product is on 11th March.
Though Brill is quick to point out he is a “proponent” of the roll-out of bitcoin ETFs and pro-bitcoin regulation more broadly, the prognosis will not bode well for the success. In conversation with CoinDesk, Brill explained that he or she believes factors like China’s impact on the buying price of bitcoin investing make an approval unlikely.
Specifically, he was quoted saying that “It seems unlikely, among all the other reasons, that this commission will almost certainly would like to progress by using a product the location where the major trading is completed with an exchanges that will not be following our AML guidelines.” In other words, China’s domination of bitcoin trading – as much as 98% of recent bitcoin transactions occurred in China – would likely force the SEC to deny any of the bitcoin ETF applications.
Blame China: “a career lawyer for 20 years, Brill worked at Thompson Financial from 2003 through 2010, in the event it acquired Reuters. Prior to departing Gemini just last year, Brill worked as being the New York City-based exchange’s general council, where he said he helped create the legal infrastructure in the exchange and craft a number of responses to amendments to its S1 filing.”
Though Brill does believe that a bitcoin ETF may ultimately be allowed to perform business with a major stock exchange, he said the SEC will be unlikely to accomplish this while as much as 95% of most bitcoin transactions are performed in China.
That, coupled with the China government’s recent crackdown on cryptocurrency exchanges and anti-money laundering practices, results in a much unlikely approval, he was quoted saying.
“It’s more how the overwhelming greater part of trading is not being done in the usa, and being done in a area where regulations are not consistent together with the rules here,” said Brill.
According to Brill, among the big hopes for additional acceptance and advancement of bitcoin is none other than Donald Trump. Speaking shortly before Donald Trump’s inauguration as President, Brill said he is “cautiously optimistic in regards to a more promising environment for bitcoin companies in the future.”
From a strictly local company perspective, he predicted Trump would likely take a pro-bitcoin stance. However, considering concerns regarding a possible “trade war” with China following Trump’s expected policies, Brill said the predominance of bitcoin trading inside the nation could be a hindrance. He concluded: “I consider to view what approaches might work to make it easier for bitcoin companies to grow throughout the US. Because right now, it is very difficult because every state has something different that they can want.”
Ultimately, bitcoin investors may have to make do without bitcoin investment for quite a while, especially when as some suspect, not just Chinese traders, but local HFTs took over trading in the extremely volatile product. Still, that may be a very good thing: failing to get ETF approval will simply keep bitcoin extremely volatile, which is also why it is now the darling asset of a subset of traders starved for volatility inside a world where central banks have eliminated virtually any daily gyrations through the equity class. Therefore, we would expect bitcoin vol just to grow, not decline, at the same time making the attainment in the bitcoin “holy grail” so much more improbable.