Over 3 years ago, in 2013, the company in the Winklevoss twins, Cameron and Tyler, Winklevoss Capital Management LLC, launched the first proposed bitcoin ETF, the Winklevoss Investment Trust, seeking to trade on the HFT-dominated BATS exchange. The SEC is expected to create a decision on it by March. Another group, SolidX Partners followed last July seeking SEC approval for its bitcoin IRA rollover, SolidX Bitcoin Trust, which would be listed on the NYSE.
Then on Friday, Grayscale Investments, a unit of Barry Silbert’s Digital Currency Group filed with the SEC to list out its own Bitcoin Investment Trust about the Ny Stock Exchange: much like the prior two attempts, the fund hopes to have SEC approval to grow the audience for that virtual currency. Initially, the trust will attempt to launch with $500 million, the filing said, even though the target is susceptible to change. At Dec. 31, it had about 1.8 million shares outstanding. According to a net asset importance of $89.39 a share, its assets under management totaled $164.2 million.
As being 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. With the new filing if approved, the trust would operate as being a traditional ETF, meaning that specialized traders would create and retire shares based upon demand.”
Two Wall Street firms, KCG Holdings Inc. and Wedbush Securities Inc., have been in discussions to provide as authorized participants, in line with the filing. Additionally, the fund’s trustee will likely be Delaware Trust Co., along with the transfer agent will be Bank of New York Mellon Corp., in line with the filing.
The objective of a bitcoin-based ETF is to present an product that might be easier for investors to access and would mute a minimum of a few of bitcoin’s volatility, even though it would hardly eliminate everything, which may still transform it into a riskier investment than many other ETFs.
Furthermore, approval “could prove an early test for how an SEC run with a Donald Trump appointee will greet innovations that may raise investor-protection or another market-structure issues.” Furthermore, the benefits of being first on the major exchange might be big, assuming that bitcoin does find a way to establish itself like 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, appeals to investors for several of the same reasons as bitcoin… regardless of whether many physical hard-core “gold-stacker” fans mock both the thought of a paper gold representing their physical holdings, while relentlessly ridiculing the concept that “digital money” contained in a server somewhere, is at all safe (following recent dramatic breaches of any Chinese bitcoin exchange, there is a point).
Earlier this month, Needham analyst Spencer Bogart wrote that “it appears there is significant pent-up demand from your investment public for such a vehicle” although he conceded that “the probability of one being approved in 2017 was extremely low, expecting the SEC may be cautious about this type of risky asset.”
Indeed, as the lawyers who helped craft the application form for what will be the first-ever bitcoin exchange-traded fund (ETF) told Coindesk, he or she is doubtful the SEC will approve such a request any moment in the near future. The critique, courtesy of former Gemini general counsel David Brill, is extremely relevant as his old employer’s last and final deadline to receive approval to the experimental product is on 11th March.
Though Brill is quick to indicate he or she is a “proponent” of the creation of bitcoin ETFs and pro-bitcoin regulation more broadly, the prognosis will not bode well for the success. In conversation with CoinDesk, Brill explained which he believes factors for example China’s influence on the buying price of invest in bitcoin make an approval unlikely.
Specifically, he explained that “It seems unlikely, among all the other reasons, that this commission will probably want to progress by using a product the location where the major trading is done upon 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 happened in China – would likely force the SEC to deny some of the bitcoin ETF applications.
Blame China: “a career lawyer for 25 years, Brill worked at Thompson Financial from 2003 through 2010, in the event it acquired Reuters. Ahead of departing Gemini last year, Brill worked since the Ny-based exchange’s general council, where he said he helped create the legal infrastructure from the exchange and craft several responses to amendments to the S1 filing.”
Though Brill does assume that a bitcoin ETF will ultimately be allowed to perform business with a major stock exchange, he stated the SEC will be unlikely to achieve this while around 95% of most bitcoin transactions are completed in China.
That, in conjunction with the China government’s recent crackdown on cryptocurrency exchanges and anti-money laundering practices, results in an even not as likely approval, he said.
“It’s more that the overwhelming greater part of trading will not be being carried out in the US, and being done in an area the location where the policies usually are not consistent together with the rules here,” said Brill.
According to Brill, one of many big hopes for more acceptance and advancement of bitcoin is the one and only Donald Trump. Speaking shortly before Donald Trump’s inauguration as President, Brill said he or she is “cautiously optimistic in regards to a more promising environment for bitcoin companies in the future.”
From your strictly small business 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 want to try to find out what approaches might work so it will be easier for bitcoin companies to expand over the US. Because right now, it is rather difficult because every state has something different that they want.”
Ultimately, bitcoin investors might have to make do without smartbitcoininvestments for quite a while, particularly if as some suspect, not simply Chinese traders, but local HFTs took over trading of the extremely volatile product. Still, which might be a very good thing: failing to get ETF approval only will keep bitcoin extremely volatile, which is why it is the darling asset of a subset of traders starved for volatility in a world where central banks have eliminated practically any daily gyrations through the equity class. As a result, we might expect bitcoin vol to simply grow, not decline, along the way making the attainment of the bitcoin “holy grail” that much more improbable.