Over 36 months ago, in 2013, the business of the Winklevoss twins, Cameron and Tyler, Winklevoss Capital Management LLC, launched the first proposed bitcoin ETF, the Winklevoss Investment Trust, seeking to trade in the HFT-dominated BATS exchange. The SEC is predicted to generate a decision into it by March. An additional group, SolidX Partners followed last July seeking SEC approval due to its bitcoin investment trust, SolidX Bitcoin Trust, that also will be listed on the NYSE.
Then on Friday, Grayscale Investments, a unit of Barry Silbert’s Digital Currency Group filed using the SEC to list its very own Bitcoin Investment Trust on the New York Stock Exchange: much like the prior two attempts, the fund hopes to acquire SEC approval to grow the viewers for the virtual currency. Initially, the trust will aim to launch with $500 million, the filing said, though the target is subjected to change. At Dec. 31, it had about 1.8 million shares outstanding. Depending on a net asset worth 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 all the new filing if approved, the trust would operate like a traditional ETF, and therefore specialized traders would create and retire shares according to demand.”
Two Wall Street firms, KCG Holdings Inc. and Wedbush Securities Inc., have been in discussions to serve as authorized participants, based on the filing. Additionally, the fund’s trustee will be Delaware Trust Co., along with the transfer agent is going to be Bank of brand new York Mellon Corp., depending on the filing.
The aim of a bitcoin-based ETF is always to provide an product that might be easier for investors to get into and would mute at the very least a number of bitcoin’s volatility, while it would hardly eliminate all of it, which would still make it a riskier investment than many other ETFs.
Furthermore, approval “could prove an earlier test for how an SEC run from a Donald Trump appointee will greet innovations which may raise investor-protection or other market-structure issues.” Furthermore, some great benefits of being first on the major exchange could 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, interests investors for a number of the same reasons as bitcoin… even when 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” incorporated into a server somewhere, is in any way safe (following recent dramatic breaches of any 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 from the investment public for this type of vehicle” although he conceded that “the possibility of one being approved in 2017 was suprisingly low, expecting the SEC could possibly be cautious about this type of risky asset.”
Indeed, as one of the lawyers who helped craft the application for which is definitely the first-ever bitcoin exchange-traded fund (ETF) told Coindesk, he or she is doubtful the SEC will approve this sort of request any time anytime soon. The critique, thanks to former Gemini general counsel David Brill, is particularly relevant as his old employer’s last and final deadline to get approval for your experimental product is on 11th March.
Though Brill is quick to indicate he is a “proponent” of the roll-out of bitcoin ETFs and pro-bitcoin regulation more broadly, the prognosis will not bode well because of its success. In conversation with CoinDesk, Brill explained which he believes factors for example China’s affect on the buying price of bitcoin investing make an approval unlikely.
Specifically, he stated that “It seems unlikely, among all of the other reasons, that this commission will almost certainly wish to move forward having a product in which the major trading is performed with an exchanges that might not be following our AML guidelines.” In other words, China’s domination of bitcoin trading – just as much as 98% of recent bitcoin transactions took place 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, when it acquired Reuters. Ahead of departing Gemini a year ago, Brill worked because the New York-based exchange’s general council, where he was quoted saying he helped create the legal infrastructure from the exchange and craft a variety of responses to amendments to the S1 filing.”
Though Brill does feel that that the bitcoin ETF could eventually be permitted to do business on a major stock exchange, he stated the SEC will likely be unlikely to achieve this while up to 95% of most bitcoin transactions are performed in China.
That, along with the China government’s recent crackdown on cryptocurrency exchanges and anti-money laundering practices, makes for a level more unlikely approval, he explained.
“It’s more that the overwhelming largest part of trading will not be being carried out in the US, and being done in an area where regulations and rules are not consistent together with the rules here,” said Brill.
In accordance with Brill, one of several big hopes for additional acceptance and growth of bitcoin is none other than Donald Trump. Speaking shortly before Donald Trump’s inauguration as President, Brill said he is “cautiously optimistic about a more promising environment for bitcoin companies down the road.”
From a strictly small business perspective, he predicted Trump would likely have a pro-bitcoin stance. However, considering concerns about 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 would like to try to discover what approaches might work to really make it easier for bitcoin companies to expand over the US. Because today, it is extremely difficult because every state has something different they want.”
Ultimately, bitcoin investors may have to make do without smartbitcoininvestments for quite a while, particularly when as some suspect, not just Chinese traders, but local HFTs have got over trading of the extremely volatile product. Still, which might be a very good thing: neglecting to get ETF approval will just keep bitcoin extremely volatile, and this is why it has become the darling asset of a subset of traders starved for volatility inside a world where central banks have eliminated almost any daily gyrations from the equity class. Consequently, we might expect bitcoin vol just to grow, not decline, in the process making the attainment in the bitcoin “holy grail” so much more improbable.