Full Compilation! Overview of Current Status of US Bitcoin ETF Applications
US Bitcoin ETF Applications: Current Status Overview
For years, a spot Bitcoin ETF has been the “holy grail” of the cryptocurrency industry.
An ETF is an investment tool that trades on public exchanges and tracks the value of an underlying asset; in the case of a Bitcoin ETF, that asset is Bitcoin. Proponents of a Bitcoin ETF argue that the complexity of exchanges, cryptocurrency wallets, and private keys still presents a significant barrier to entry for newcomers to the cryptocurrency space, and that a Bitcoin ETF would allow ordinary users to gain exposure to Bitcoin investment without actually holding their own cryptocurrency.
Spot Bitcoin ETFs have sprung up around the world in places like Canada, Brazil, and Dubai, and in October 2021, ProShares’ Bitcoin Futures ETF went live on the New York Stock Exchange. However, to date, the US Securities and Exchange Commission (SEC) has rejected all applications for a spot Bitcoin ETF. Spot ETFs offer a direct investment opportunity in Bitcoin, as opposed to futures contracts. The SEC has repeatedly pointed out the potential for market manipulation by cryptocurrency traders.
However, spurred on by asset management giant BlackRock, a number of financial firms have entered the new race for spot ETF approval. Here are the spot Bitcoin ETFs currently waiting for approval (as of June 29, 2023, according to public data):
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1. Ark Invest
Investment firm Ark Invest, led by “Woodstock lady” Cathie Wood, submitted an application for the Ark 21Shares ETF in June 2021. ARK Invest is collaborating with Swiss ETF provider 21Shares AG to launch the ARK 21Shares Bitcoin ETF; if approved, it will trade on Cboe’s BZX exchange under the ticker symbol ARKB.
The company was also the first to disclose the fees for its Bitcoin ETF, with documents showing plans to pay 0.95% to 21Shares, which will use the money to cover operational costs.
Ark Invest has invested in cryptocurrency exchange Coinbase, Grayscale Bitcoin Trust, and payment processor Square, which holds over 8,000 bitcoins on its balance sheet. Cathie Wood is a passionate advocate for Bitcoin, believing that cryptocurrency represents “a new asset class” and can serve as a reserve currency.
ETF applications from Ark Invest were rejected in early 2022, and the company immediately reapplied. Their application was rejected again in January 2023, and Ark Invest is currently in the process of making a third application.
On June 15th, the world’s largest asset management company, BlackRock (with assets under management exceeding $9 trillion as of the first quarter of 2023), submitted a Bitcoin spot ETF application, shocking both the TradFi and crypto industries. The filing proposed Coinbase as the cryptocurrency custodian and spot market data provider, and BNY Mellon as the cash custodian.
Bloomberg senior ETF analyst Eric Balchunas said that the investment product is technically a trust, but functionally a “real trading” spot market ETF. Balchunas said that BlackRock has had multiple disputes with the US Securities and Exchange Commission (SEC) over launching ETFs, but its success rate is 575:1.
BlackRock’s ETF application has been endorsed by former Barclays CEO Bob Diamond, and has spurred WisdomTree, Invesco, and Valkyrie to submit new applications to the SEC, while also helping to boost the Bitcoin price to above $30,000 in June 2023.
Bitwise Asset Management submitted a new application to the US SEC on June 16th, requesting rule changes to accommodate its planned Bitwise Bitcoin ETP Trust.
The US SEC had rejected Bitwise’s spot Bitcoin ETF application in June 2022, and believed that the ETF could not achieve adequate oversight sharing or provide protection against market manipulation and prove the large market scale.
In April of this year, Bitwise CIO Matt Hougan stated that while a spot Bitcoin ETF would be “great for investors” in the long run, Bitwise may wait until regulations are more clear before launching another ETF.
In the new filing, Bitwise argues that the US SEC should approve, reject, or initiate additional proceedings around its proposed rule changes within 45 to 90 days. It is reported that the application was filed by the New York Stock Exchange (NYSE), but has not yet been processed by the US SEC, meaning the actual deadline for the relevant application is currently unclear.
4. Invesco Galaxy Bitcoin ETF
Galaxy Digital and Invesco jointly submitted a bitcoin ETF named Invesco Galaxy Bitcoin ETF on September 22nd, 2021. According to the filing, its ETF will also be backed by physical bitcoin, as opposed to derivatives such as futures. Invesco Capital Management LLC is the applicant, but it is currently unclear which company will custody the bitcoin for the application.
The sponsor is a wholly-owned subsidiary of Invesco Ltd, the fourth-largest ETF provider in the US, a qualification that may assist in the application submission. John Hoffman, Invesco’s US ETF Strategy Head, commented, “For people who have been involved in ETFs for a long time, this is very reminiscent of the early days of ETFs (late 1990s, early 2000s).”
This product is the first in a series of crypto ETFs that the two companies hope to list on the US market.
New York-based asset management company WisdomTree already has experience operating a bitcoin ETF; it launched a bitcoin ETF on Switzerland’s SIX exchange in 2019. It joined the list of candidates for a US bitcoin ETF in March 2021, submitting an S-1 filing to the SEC proposing the WisdomTree Bitcoin Trust list on the Cboe bZx exchange with the stock code BTCW.
Since then, the SEC has repeatedly delayed, first soliciting public feedback on the proposal, then announcing that it needed more time to consider the “issues raised” in the comment letter.
The SEC rejected WisdomTree’s application at the end of 2021, around the same time it rejected similar applications from Valkyrie and Kryptoin. Shortly after BlackRock submitted its application, WisdomTree submitted a new application for mid-2023.
6. Valkyrie Investments
As a newer participant, asset manager Valkyrie submitted its first bitcoin ETF application in January 2021. The ETF will reference the bitcoin reference price from the Chicago Mercantile Exchange (CME) and trade on the New York Stock Exchange Arca, “providing investors with an efficient means of implementing various investment strategies,” according to the proposal. Cryptocurrency custodian Xapo is responsible for custodying and cold-storing the fund’s bitcoin.
In the document, Valkyrie mentioned the volatility of cryptocurrencies – a major concern of the SEC regarding Bitcoin ETFs. It stated in its risk assessment, “The potential consequences of a failure of a Bitcoin exchange could have an adverse impact on the value of the shares.”
Unsurprisingly, the SEC delayed the ruling on Valkyrie’s application, as well as those of Kryptoin, WisdomTree, and Global X, ultimately rejecting Valkyrie’s and Kryptoin’s applications around Christmas 2021.
Early in 2022, Valkyrie’s Bitcoin mining ETF was approved by the SEC. The instrument is backed by holdings of companies that use an average of 77% renewable energy, including industry heavyweights such as Argo Blockchain, Bitfarms, Cleanspark, Hive Blockchain, and Stronghold Digital Mining.
In June 2023, Valkyrie submitted another Bitcoin spot ETF application to the SEC.
Financial services giant Fidelity, which manages around $11 trillion in assets, filed for an ETF on June 29 under the name Wise Origin Bitcoin Trust. According to the filing, Fidelity Digital Assets will be “responsible for custodying the Bitcoin held by the Trust.”
Unlike BlackRock, Fidelity has previously attempted to launch a Bitcoin spot ETF. The company filed for the Wise Origin Bitcoin Trust in 2021, a proposed ETF that was ultimately rejected by the SEC in January 2022. This rejection came just two months after Fidelity successfully launched a Bitcoin spot ETF in Canada.
Fidelity has been involved in the crypto space for years, launching Fidelity Digital Assets in 2018 to provide cryptocurrency custody and trade execution services for institutional investors such as hedge funds, family offices, and market intermediaries. It also launched the Cryptocurrency Industry and Digital Payment ETF (FDIG) and Fidelity Metaverse ETF (FMET) in April 2022.
There have been many cases of failed Bitcoin spot ETF applications; to date, the SEC has rejected all relevant applications. The following are all applications that have been rejected so far:
1. Global X
Global X Digital Assets, a fund management firm that oversees $31 billion in assets, applied to the SEC in July 2021. The proposed Global X Bitcoin Trust would trade on the Cboe BZX exchange.
GlobalX’s investment portfolio covers 84 ETFs, including disruptive technology, stock returns, commodities, and emerging markets. The proposed trust did not disclose the identity of the custodian responsible for safeguarding Bitcoin, but only stated that it was a limited-purpose trust company authorized to provide digital asset custody services in New York state.
In September 2021, GlobalX Bitcoin Trust was one of four Bitcoin ETF applications (including one Bitcoin futures ETF application) whose deadlines were postponed by the SEC, with a new deadline of November 21, 2021. In March 2021, the proposal was rejected by the SEC and NYDIG.
Kryptoin, headquartered in Delaware, first attempted to apply for a Bitcoin ETF in October 2019, planning to list the Kryptoin Bitcoin ETF Trust on NYSE Arca. This financial services company made a second attempt to launch a Bitcoin ETF in April 2021, with a revised proposal to list the trust fund on Cboe’s BZX Exchange. Its amended filing lists service providers to assist in launching the ETF, including the cryptocurrency exchange Gemini, which will provide custody services for the Bitcoin held by the trust.
By the end of that month, the application was officially under review by the SEC, which then delayed its decision on the application until July 27, 2021.
In September 2021, the SEC once again extended the deadline for its decision on Kryptoin Bitcoin ETF Trust, with a new date of December 24, 2021. At this time, the SEC’s announcement emphasized the need for more time to “consider the proposed” rule changes and the issues raised in the comment letters related to them. The SEC rejected the applications from Kryptoin and Valkyrie at the end of 2021.
3. Fidelity/Wise Origin
In March 2021, Bitcoin ETF applications surged, including Fidelity’s Wise Origin Bitcoin Trust. This was not surprising, as just a few weeks earlier, its global macro director Jurrien Timmer said that Bitcoin has “unique advantages” over gold. The application for Wise Origin Bitcoin Trust will be managed by Fidelity Service Company Inc and the ETF’s underlying Bitcoin will be held by Fidelity Digital Assets.
In May 2021, the Chicago Mercantile Exchange Global Markets (Cboe Global Markets) submitted a proposal listing Fidelity Bitcoin ETF, stating that the SEC’s concerns about market manipulation had “been adequately addressed” due to increased investor participation and institutional adoption of cryptocurrencies. This “promotes the maturity of the Bitcoin trading ecosystem.” The US Securities and Exchange Commission began reviewing Fidelity’s application the same month.
In January 2022, Fidelity’s ETF was rejected.
4. First Trust/SkyBridge
In March 2021, hedge fund SkyBridge Capital submitted a Bitcoin ETF application to the SEC. The company, run by former White House Communications Director Anthony Scaramucci, already operates a Bitcoin fund open to qualified investors with a minimum investment of $50,000; within weeks of its January 2021 launch, its sales grew to over $370 million.
That same month, Scaramucci expressed optimism that a Bitcoin ETF could be approved by the end of 2021, stating “I’m hopeful that with Gary Gensler now entering the regulatory rules and my understanding of his background, we may be able to launch an ETF by the end of this year.”
In May 2021, the New York Stock Exchange Arca submitted a proposed rule change application, and SkyBridge Capital’s Bitcoin ETF will be listed on the exchange. The SEC delayed its review period for Skybridge’s Bitcoin ETF in July and ultimately rejected the ETF in January 2022.
5. New YorkDIG/Stone Ridge
New York Digital Investment Group and consultancy firm Stone Ridge quickly seized the opportunity brought about by the change in leadership at the SEC, becoming the second potential ETF to submit an application to the regulatory agency in 2021. The application was submitted on February 16, when Bitcoin first broke $50,000.
In March 2022, the SEC rejected NYDIG and Global X’s application.
6. One River
One River Asset Management launched a bidding war for a Bitcoin ETF in May 2021 and applied for a carbon-neutral Bitcoin exchange-traded fund. With Bitcoin’s energy consumption and carbon footprint coming under increasing scrutiny, One River promised to offset its carbon footprint by “purchasing and retiring the necessary carbon credits to calculate the estimated carbon emissions associated with the Bitcoin held by the trust” through the environmental platform Moss Earth.
To win the support of the U.S. Securities and Exchange Commission, One River dropped a bombshell, hiring former SEC Chairman Jay Clayton as an advisor. Its application was rejected in May 2022.
7. Galaxy Digital
In April 2021, cryptocurrency investment firm Galaxy Digital applied for a bitcoin ETF; at the time, the eighth such application had been submitted to the SEC. The proposed Galaxy Bitcoin ETF would be listed on the New York Stock Exchange’s Arca. Galaxy Digital manages over $2.5 billion in assets and is also one of the largest institutional holders of bitcoin, with a stash of 16,400 bitcoins (worth nearly $500 million at current prices).
Billionaire Galaxy Digital founder Mike Novogratz shared his thoughts on the SEC’s unwillingness to approve a bitcoin ETF at the 2021 Ethereal Summit, saying that under the leadership of the Trump administration, the SEC instead allowed the Grayscale Bitcoin Trust (GBTC) to flourish, which is “not so good” for consumers. Novogratz believes that GBTC lets consumers “buy bitcoin at a 20-30% premium and be arbed into closed-end funds by hedge funds… An ETF would be a more elegant solution.”
Like all other ETF proposals, Galaxy Digital’s standalone application has yielded no results, but later, in September 2021, the company and Invesco applied for a joint ETF, as mentioned above, submitting a new application after BlackRock.
Cryptocurrency investment fund manager Grayscale’s GBTC Bitcoin Trust manages over 600,000 BTC (worth nearly $20 billion at today’s prices), and in October 2021 it began formally submitting applications to convert to a spot ETF.
If its application is successful, Grayscale will be able to charge lower management fees and fund inflows and outflows will be easier. Grayscale first submitted an application to launch a bitcoin ETF in 2016, but withdrew the application a year later, stating, “We believe the regulatory environment for digital assets has not evolved to the point where such a product can successfully be brought to market.”
The lack of a mature bitcoin ETF has posed problems for Grayscale and the wider bitcoin market. GBTC has replaced such products, meeting most of US institutions’ bitcoin needs. However, its shares sometimes trade at a negative premium, below the value of the underlying bitcoin per share, but the fund does not allow shares to be redeemed for bitcoin itself, so the market cannot organically solve this problem. If a bitcoin ETF is approved, investors will be able to redeem shares at any time. This could prevent negative premiums from occurring and help keep shares in line with the value of the underlying token.
Grayscale has been laying the groundwork for a Bitcoin ETF for some time, hiring ETF experts and signing an agreement with the Bank of New York Mellon, which will serve as a service provider for GBTC. If converted to an ETF, Bank of New York Mellon will provide transfer agency and ETF services.
In June 2022, the SEC rejected Grayscale’s application, stating that the company did not do enough to prevent potential fraud. Grayscale immediately filed a lawsuit against the regulator, calling its refusal “illogical.”
VanEck is one of the earliest applicants for a Bitcoin ETF. As early as 2018, it first attempted to launch a Bitcoin ETF in collaboration with SolidX – the VanEck SolidX Bitcoin Trust Fund.
Although the application was withdrawn in September 2019, VanEck once again attempted to launch a Bitcoin ETF, submitting the VanEck Bitcoin Trust application to the SEC in December 2020, with the trust’s shares trading on Cboe BZX.
It is worth noting that VanEck submitted its second application just days after former SEC Chairman Jay Clayton resigned. In a CNBC interview in 2019, Clayton scoffed at the prospects for a Bitcoin ETF, noting that while progress had been made around custody concerns, cryptocurrencies were still vulnerable to price manipulation and overseas exchanges “do not provide the same level of protection as the US stock market.”
The SEC has repeatedly postponed its decision on VanEck’s second Bitcoin ETF application and rejected it in November 2021. The company subsequently filed a third application in mid-2022, but the SEC again stonewalled, ultimately rejecting it in March 2023.
A long and winding road
The road to a Bitcoin ETF has been long. Since the Winklevoss brothers first applied for a Bitcoin Trust similar to an ETF in 2013, the US Securities and Exchange Commission (SEC) has been dragging its feet on the idea. In recent years, it has repeatedly delayed decisions on multiple Bitcoin ETFs, causing companies like VanEck to withdraw their applications out of fear that the SEC would reject them.
The SEC’s main concerns about approving a Bitcoin ETF involve a lack of transparency in trading information, market manipulation, and Bitcoin’s different properties from other financial assets (such as what happens in the case of a hard fork), as well as a lack of liquidity in the market.
Sui Chung, CEO of cryptocurrency index provider CF Benchmarks, pointed out in an interview with Decrypt that early applicants for a Bitcoin ETF (such as the Winklevoss brothers) were all from start-ups, albeit well-funded start-ups. But now, these applications are coming from a new generation of applicants who are ready to tackle these challenges.
Sui Chung said: “I think the SEC has expressed concerns in many areas before, where applicants have no rich experience in the ETF market, especially in the volatile cryptocurrency market and how they synchronize with the stock market through ETF structures,” he added that, if built correctly, a Bitcoin ETF is no different from any other ETF listed on a stock exchange.
In August 2021, SEC Chairman Gary Gensler pointed out in a hearing that he was “particularly looking forward” to the SEC’s review of “Bitcoin futures ETFs limited to trading on the CME,” suggesting that the SEC is more inclined to Bitcoin futures ETFs. The physical holding of Bitcoin ETFs has triggered a wave of applications for Bitcoin futures ETFs, with companies such as Galaxy Digital and VanEck applying.
Gensler once again expressed interest in Bitcoin futures ETFs in a speech he prepared for the “Future of North American Asset Management” conference hosted by the Financial Times in September 2021. Gensler said that earlier this year, “some open-end mutual funds launched investments in Bitcoin futures traded on the Chicago Mercantile Exchange (CME).”
The SEC chief noted that the regulator has received many filings for Bitcoin futures ETFs under the 1940 Investment Company Act, also known as the “40 Act.” “In conjunction with other federal securities laws, the ’40 Act provides important investor protections for mutual funds and ETFs,” Gensler said. “I look forward to staff’s review of such filings.”
In October 2021, the long wait finally came to an end, and the first Bitcoin futures ETF was listed on the New York Stock Exchange. ProShares BTC Futures ETF almost broke all trading records for debut ETFs, with trading volume on the first day close to $1 billion.
Global Bitcoin ETF
While the US has been slow to act, other countries are pushing forward. There are now multiple Bitcoin ETFs operating in countries such as Canada and Brazil. Europe has many exchange-traded notes (ETNs), which are very similar financial instruments.
Despite multiple rejections and delays, the cryptocurrency industry remains optimistic, and BlackRock’s application in June 2023 reignited hope. After BlackRock submitted the application, Eric Balchunas, senior ETF analyst at Bloomberg, said that BlackRock’s move “undoubtedly injected new vitality and optimism into the entire Bitcoin ETF race.”
Author: BlockingBitpushNews Mary Liu
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