Bitcoin ETF in the United States in the past eight years, from unattainable to within reach

On October 9, Bloomberg reported that four BTC ETFs are expected to be approved by the U.S. Securities and Exchange Commission (SEC) by the end of October. The SEC may decide by the end of October whether to approve, reject or delay the listing application of such ETFs. Bloomberg ETF analyst James Seyffart said that he believes that the possibility of approval is very high, "There is no reason for the SEC and its chairman Gensler to make a positive comment on the BTC futures ETF based on the 1940 law in late September and then make the opposite decision less than a month later."

(Gensler teaches a Blockchain course at MIT)

SEC Chairman Gary Gensler has always advocated for incorporating Crypto into the regulatory framework, and the only way to do this is to provide investors with compliant Crypto exposure. On September 30, he expressed support for BTC futures ETF funds rather than BTC spot ETF funds. As of now, there are a total of 9 BTC futures ETFs waiting for SEC approval.

Just a few days ago, the SEC approved the Volt Crypto Industry Revolution and Tech ETF, 80% of which will be allocated to entities defined as holding a majority of BTC net assets or whose income comes mostly from BTC mining, lending or trading. This is also considered by the market as a prelude to a BTC ETF.

After a series of regulatory developments, the approval of BTC ETF seems to be just around the corner. These news have aroused strong market attention and market sentiment has continued to warm up. If the SEC finally approves the Crypto ETF, it will undoubtedly play a demonstration effect in traditional finance. If Crypto ETFs emerge one after another and financial giants compete to buy Crypto, it is not impossible.

Although many BTC ETFs have been launched before, the launch of Crypto ETFs in the United States is still a milestone: BTC will be fully open to the United States, where traditional finance is most developed and capital is most concentrated. A large number of traditional financial institutions can have Crypto exposure, and the market temperature may rise sharply. If the SEC finally approves it, it may add some fuel to the gradually warming market sentiment. The word "market" no longer needs to distinguish between traditional finance or the Crypto world. The importance of this event is enough to penetrate the entire financial market.

Why are ETFs important?

In the traditional financial system, ETF is an extremely important component. Because when a commodity can appear in the form of an ETF, it means that the commodity is compliant and mature in the local area. Exchange-traded funds (ETF) can securitize specific assets in the form of physical collateral. Investors only need to purchase fund shares issued by the institution to indirectly hold exposure to the corresponding investment targets. This product was invented by John Bogle, the founder of Vanguard Investments. In 1993, he issued the world's first and still famous index ETF - the S&P 500 Index ETF.

Several years after the birth of stock index ETFs, the first bond ETF was born in 2001. After years of development, the types of ETFs have gradually increased. How important are ETFs in today's financial markets? Today, we have entered an era where everything can be an ETF. Canada has even launched the world's first marijuana-themed ETF.

At present, there are three well-known BTC ETFs in the world: Purpose BTC ETF with 21,700 BTC, 3iQ CoinShares BTC ETF with 20,200 BTC, and CI Galaxy BTC ETF with 3,393 BTC. Crypto is a rapidly emerging new asset, and many institutions are interested in it. However, due to compliance requirements, if you want to hold this asset, there are not many investment options.

In the first half of 2021, BTC once again ushered in a sustained rise. Unlike in the past, this bull market is dominated by institutions, and the amount of funds of investment institutions and listed companies is far beyond the reach of retail investors. Driven by massive funds, BTC also hit a record high of $64,000. Although Crypto has attracted much attention from traditional finance, most large traditional financial institutions still do not allocate Crypto. Regulatory and compliance issues have always constrained mainstream financial institutions from allocating Crypto exposure. ETFs are compliant, regulated, and have good liquidity and can be traded intraday. If there is a Crypto ETF, it will undoubtedly completely open the door to the Crypto world and traditional finance.

ETFs have been one of the most successful investment tools available to investors, with low fees and high intraday liquidity. Among all exchanges in the United States, ETF trading alone accounts for 30% of the total trading volume of US exchanges. How much money can BTC ETF bring to the Crypto market?

(Spot gold, which is not easy to deliver, is not the first choice for investors to trade gold)

Let's take gold as an example. Data shows that the current global gold Bars and Coins (gold bars and coins) are about 38,000 tons, and the gold ETF market has reached about 2,200 tons. It accounts for 5.6% of the B&C gold market share. If this ratio is used to calculate, ETFs can attract about 6% of the current total market value of funds into the market, which is about 60 billion US dollars based on the current market value.

ETFs not only solve compliance issues, but the liquidity they provide to the market is equally important. ETFs provide investors with a cheap and simple tool that allows them to access Bitcoin in a safe and accessible product. This approach will help better protect investors who don't know much about Crypto: they don't have to actually hold Bitcoin, don't need to understand chains, addresses, public keys, private keys, and don't have to worry about forgetting their private keys and losing their assets. This will technically level the threshold for everyone to invest in Crypto. Although this may not be the original intention of BlockChain, this fairness is unexpectedly consistent with the purpose of BlockChain.

The Great Journey of BTC ETF

The development of BTC ETF can be said to have had a rough road. As early as 2013, the Winklevoss brothers announced that they would launch a BTC ETF. In 2014, the ETF was rejected by the SEC after the application was submitted. Since then, the Winklevoss brothers have tried to establish a BTC ETF in various ways, such as changing the trading venue and setting up the location. They have applied several times over the years, but all failed. The plan is still shelved. This may be the first attempt at a BTC ETF.

In 2016, SolidX’s application for a Bitcoin ETF was rejected. In 2017, BTC ETFs seemed to be developing rapidly. The price of BTC changed dramatically this year, from the lowest of $789 at the beginning of the year to the highest of $18,674 at the end of the year. Several BTC ETFs applied to be established within a year, from BTC Investment Trust at the beginning of the year, VanEck in the middle of the year, to Exchange Listed Funds Trust, Pro Shares, REX BTC, and First Trust at the end of the year. Six ETFs submitted applications within a year, but unfortunately, they were either rejected by the SEC or withdrawn on their own initiative, and none of them was successfully issued.

In 2018, even with the continuous decline in the price of cryptocurrencies, new ETF applications have not stopped. This year, two new players, GraniteShares and Direxion, entered the market, and two old players, VanEck and SolidX, jointly applied for an ETF. However, it was no different from the past year. The ETF applications of the first two were rejected by the SEC, while the application of the latter was withdrawn due to the breakdown of the partnership.

At that time, the SEC had not yet clearly defined BTC, and Crypto was neither a security nor a financial derivative. As a non-physical commodity, BTC is theoretically not regulated by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, which is one of the main reasons why BTC ETFs are frequently rejected.

Since then, one or more BTC funds have submitted applications every year, but without exception, they have all failed. Applications have been rejected repeatedly, and expectations have been dashed repeatedly. The issuance of BTC ETFs seems to always stay in "next year". Until today, the issuance of "the first BTC ETF in the United States" is still in the state of "promising to pass".

Now it is 2021, and the wheel of history is finally turning slowly forward. In February of this year, Canada approved the world's first BTC ETF - Purpose BTC ETF. After the ETF (stock code BTCC) was officially listed on the Toronto Stock Exchange in Canada, the total trading volume on the first day was 9.3 million shares, with a total transaction amount of US$145 million, becoming one of the top ten most actively traded securities on the Toronto Stock Exchange that day.

In just a few months, Crypto ETFs began to grow, and in a few months they quickly completed a path that had not been taken in the previous few years. Just two months after the issuance of BTC ETF, three ETH ETFs were also approved for listing, namely: Purpose Ether ETF (ETHH) launched by Purpose Investment, CI Galaxy Ethereum ETF (ETHX) launched by CI Global Capital Management, and Evolve Ether ETF (ETHR) launched by Evolve Capital Group.

Grayscale is an alternative to ETFs

The widely existing cross-chain bridges in the crypto world connect different infrastructures, and in the two markets of traditional finance and the on-chain world, there is also an urgent need for a "bridge" to connect the two. Grayscale Trust is the most famous bridge among them.

(Traditional financial institutions on Wall Street cannot easily configure Crypto exposure)

If a compliant institutional investor is bullish on Crypto, how can he configure Crypto exposure in full compliance? Grayscale Trust is one of the answers. In this round of bull market boosted by institutions, the rapid rise of Grayscale Trust has also allowed the traditional financial industry to see new opportunities - entering the Crypto world is a real need urgently needed by the market. Even now, Grayscale still has the largest position among institutions, with BTC holdings reaching 649,000. For a long time, Grayscale Trust shares have been one of the main ways for institutions to indirectly invest in Crypto currencies.

Unfortunately, Grayscale Trust is not so "easy to use". Grayscale is not a real ETF product and has long been regarded as an alternative to Crypto ETFs. Although it provides institutions with Crypto exposure, Grayscale Trust also has great disadvantages compared to real ETFs. Grayscale Trust's GBTC shares not only have a 6-month lock-up period, but can only be resold after unlocking and cannot be redeemed. This special mechanism may also be one of the reasons for the long-term premium of Grayscale shares compared to BTC. For many years, Grayscale GBTC has maintained a high premium level, even exceeding 100% at its highest. The lack of a regulatory framework has left institutional investors without easy-to-use tools to enter the market.

In addition to Grayscale Trust, there are other alternatives on the market. As early as 2017, France's Tobam ​​issued the world's first BTC mutual fund. In the same year, Switzerland's Swissquote Group launched a BTC certificate ETP product and listed it on Six Swiss, Switzerland's largest stock exchange. Since then, Germany, Sweden, Austria and other countries have successively issued Crypto ETP products. Similar to the disadvantages of Grayscale Trust, these products can only meet some of the functions of ETFs - ETPs are essentially bonds and cannot be included in the regulatory framework of the fund.

Within the current regulatory framework, Crypto ETFs are the real demand of the market. After all, alternatives to ETFs cannot truly replace ETFs. If Crypto ETFs can be established, a fully compliant, intraday tradable financial product that can be purchased by financial institutions as a fund can be established. This greatly reduces the threshold for institutions to configure Crypto. This is also one of the reasons why the Crypto industry has been repeatedly rejected in the past eight years but still continues to apply.

CryptoETF is currently accelerating. However, in the United States, which is the most capital-intensive country, no compliant ETF has been launched yet. According to statistics, at least 15 asset management institutions in the United States have applied for Crypto ETFs at least 35 times to date. Unfortunately, none of them have been approved so far. As the compliance framework gradually improves, the door to the Crypto world is gradually opening up to traditional finance. If the BTC futures ETF is approved this time, it may have a certain demonstration effect in the traditional financial field. As for whether the US Crypto ETF will keep up with the pace of other regions, or whether it is "expected to be launched" as it has been for several years, we still need to wait for time to give the answer.