The United States has a backlog of multiple Bitcoin ETF applications. Once approved, can it bring the long-awaited results?

Since the Winklevoss brothers first launched the Bitcoin ETF in 2013, different institutions in the United States have applied for Bitcoin ETFs every year for 9 years, but without exception, they have all ended in failure (either rejected by the US SEC or voluntarily withdrawn), and even become a "curse that will always be passed next year."

Tomorrow (August 10), the US SEC will once again decide whether to approve the application for the Valkyrie Bitcoin ETF. Many people are still paying attention to whether it can be approved this time.

01 US Bitcoin ETF application “approved always next year”

After experiencing the wave of the traditional financial world accelerating its entry into the crypto field in 2020, the application situation for Bitcoin ETF in the United States in 2021 remains unabated.

Even though the U.S. Securities and Exchange Commission (SEC) postponed the application decision for the Valkyrie Bitcoin ETF several times not long ago, it has not slowed down the pace of applications. In fact, it has made people more courageous, including some obvious positive changes in the application institutions and design ideas.

(US) Incomplete Statistics of Bitcoin ETF Applications (2013-2021.04)

First, unlike the previous sources of applications which were mostly concentrated in institutions with strong internal circles, this year, especially in the past three months, key players in the traditional financial migrant worker world, such as asset management companies and investment banks in the traditional financial world, have also begun to enter the market intensively, even in a blowout, with an obvious intention to share the pie.

According to incomplete statistics from the author, since May, there have been reports on US asset management companies Victory Capital, asset management company Simply, Ark Investment Management, Swiss cryptocurrency ETP issuer 21Shares, asset management giant Invesco, ETF issuer Volt Equity, etc.:

• On May 21, ETF provider Teucrium submitted a Bitcoin futures ETF application to the SEC;

• On May 25, digital asset hedge fund One River applied to the SEC to create a carbon-neutral Bitcoin ETF;

• On May 27, asset management company Simply launched a fund with Bitcoin in its portfolio;

• On June 8, ETF issuer Volt Equity applied to the SEC for a Bitcoin-related ETF;

• On June 10, Texas-based asset management company Victory Capital plans to enter the crypto market by setting up a private fund for qualified investors;

• On June 29, Ark Investment Management and 21Shares, a Swiss cryptocurrency ETP issuer, jointly launched a new product, the ARK 21Shares Bitcoin ETF. 21Shares is the sponsor of the ETF, and Ark Investment Management assists in the sales of the ETF.

• At the end of July, Goldman Sachs submitted an application for an exchange-traded fund (ETF) to the SEC;

• In early August, asset management giant Invesco submitted an application to the SEC, planning to launch the Invesco Bitcoin Strategy ETF, an exchange-traded fund based on Bitcoin futures.

Secondly, in terms of the implementation form of Bitcoin ETF, it is no longer limited to the traditional ETF form that mainly revolves around the "buy, buy, buy" of Bitcoin spot, but has emerged with many new design ideas. The most traditional financial flavor is the idea of ​​the ETF issuer Volt Equity mentioned above - 25% of the net assets will be invested in MicroStrategy stocks,

I think this is a promising compromise idea that provides investors with investment opportunities in companies in the cryptocurrency field, allowing them to invest in the cryptocurrency market without directly holding crypto assets such as Bitcoin and Ethereum. Bitwise, an asset management company that has been applying for a Bitcoin ETF for many years, has also launched a similar product.

At the same time, the crypto fund of Victory Capital mentioned above mainly tracks the Nasdaq Crypto Index (NCI), which is equivalent to covering not only Bitcoin, but a basket of cryptocurrencies including Bitcoin (of course, tracking the index does not necessarily require holding the corresponding spot assets).

In addition, there is the latest Bitcoin Strategy Fund from VanEck, a veteran Bitcoin ETF applicant. It plans to invest in Bitcoin futures contracts as well as collective investment tools and exchange-traded products (ETPs) involving Bitcoin, rather than directly investing in Bitcoin and other digital assets. The same is true for Invesco mentioned above.

Grayscale, which the market has generally expected, recently hired David LaValle, former CEO of index customization provider Alerian, as global head of its exchange-traded funds (ETFs) to promote the conversion of the $25 billion Grayscale Bitcoin Trust (GBTC) into an ETF. Grayscale CEO Michael Sonnenshein said Grayscale is "100% committed" to this process.

This can be regarded as a new idea to realize Bitcoin ETF in a roundabout way. GBTC is already listed on the pink sheet market of US stocks. The current secondary market size is as high as US$25 billion, and it has been verified by years of transactions.

Therefore, once GBTC is successfully converted directly into an ETF, its impact in terms of fund scale and publicity effect should be far greater than that of a newly approved Bitcoin ETF.

02 "Hot" outside the United States

Unlike many Bitcoin ETFs in the United States that have had to wait for years without success, on February 18 this year, Canada's Purpose Investment Company took the lead in the "first Bitcoin ETF" - Purpose Bitcoin ETF.

Since the listing of Purpose Bitcoin ETF, the number of bitcoins it holds has continued to increase, reaching 22,032 as of August 5, with a current market value of over US$800 million.

At the same time, the positive premium corresponding to GBTC began to decline continuously, and entered the negative premium range on the 22nd. The latest premium data on August 3 was -11.84%. Funds flowed out of GBTC and flowed into the Bitcoin ETF in large quantities, which also shows the market's enthusiasm and expectations for ETFs. This will undoubtedly bring pressure to the United States, which has not yet passed the Bitcoin ETF.

At the same time, ETFs in other parts of the world have also made good progress in the past two months. First, on June 23, the Brazilian Stock Exchange (B3) listed the first Bitcoin ETF transaction in Latin America launched by QR Capital.

Earlier this month, French investment management company Melanion Capital also announced that it would launch an ETF that would provide risk exposure to blockchain companies and mining companies and would be regulated by the European Union.

03 Regulatory uncertainty is the biggest obstacle to ETF application approval

For a number of Bitcoin ETF applications in the United States, the most noteworthy issue at present is actually the attitude of the regulators. Although the new US SEC Chairman Gary Gensler was considered a friendly person in the crypto industry before taking office, he has not made any obvious positive statements since taking over at the end of last year (the ETF was still not approved).

Earlier this month, Bloomberg revealed that Gary Gensler had asked Congress to pass a law to give the SEC the power to regulate crypto transactions, and he did not give any timetable for the Bitcoin ETF currently expected by the market.

Even at the Aspen Security Forum held on Tuesday, Gary Gensler took a tougher stance, saying that many areas of cryptocurrency may involve securities laws and must be regulated by the SEC.

However, what is quite interesting is that just yesterday, Brian Quintenz, Commissioner of the U.S. Commodity Futures Trading Commission (CFTC), directly tweeted that the U.S. Securities and Exchange Commission (SEC) has no regulatory authority over pure commodities and their trading venues, whether these commodities are wheat, gold, oil, or crypto assets with commodity attributes, etc.

These seemingly contradictory remarks actually reflect that the US regulatory authorities have not yet reached a consensus on the legal definition of cryptocurrencies and the division of regulatory powers and responsibilities. This may also be the key reason why there has been no breakthrough in the way that crypto assets such as ETFs are bridged to traditional finance:

According to a CFTC commissioner, derivatives with securities attributes are regulated by the SEC, such as financial products derived from Bitcoin ETFs; while commodities themselves are regulated by the CFTC, such as Bitcoin and other cryptocurrencies with commodity attributes.

But there is a core problem here, which is that the scope of the definition of securities urgently needs to be clarified by law - for example, other cryptocurrencies besides Bitcoin, whether some of them may be directly defined as securities in the future (see the SEC's previous war with XRP and Telegram) rather than commodities.

So in general, the current Bitcoin ETF applications are actually waiting for the arrival of this final "regulatory point". Once the regulatory attitude becomes clear, these backlog requests may "come in one after another."