Many fund institutions apply for the first Bitcoin ETF in the United States, but the SEC's attitude is not clear

Reporter | Si Linwei

On March 20, SkyBridge Capital, an investment advisory firm run by former White House communications director Anthony Scaramucci, submitted an application for a Bitcoin ETF to the U.S. Securities and Exchange Commission (SEC). Another company has joined the ranks of applicants for the first Bitcoin ETF in the United States.

Since 2020, at least four fund companies have submitted the application. In addition to VanEck, which has applied several times, the other three companies are VanEck Associates Corp, NYDIG Asset Management and Valkyrie Digital Assets. The U.S. Securities and Exchange Commission (SEC), which will decide their fate, currently has an unclear attitude.

Bitcoin ETFs (Exchange Traded Funds) are retail investor-friendly exchange-traded funds that allow traders to gain exposure to Bitcoin through traditional stock markets without having to buy and sell crypto assets directly on crypto asset exchanges. This means that investors can purchase with fiat currency and receive corresponding fiat currency when exiting.

If you want to launch this product to investors, US investment institutions must first obtain permission from the US Securities and Exchange Commission (SEC) before issuing the product. In other words, obtaining operating permission from the regulator is a key step in the launch of a Bitcoin ETF.

In 2013, the Winklevoss brothers, two well-known American investors, applied to the SEC for a Bitcoin ETF for the first time, but were rejected. Since then, countless companies have made similar attempts, but the SEC has rejected all Bitcoin ETF applications, citing concerns about potential market manipulation and the huge price volatility of Bitcoin.

But things took a turn for the better in 2021. The US SEC was reluctant to give in, but Canada, which has always been part of the North American market like the United States, took the first step.

On February 13, Canadian asset management company Purpose Investments Inc. issued a statement saying that the Ontario Securities Commission (OSC) has approved the company's Bitcoin ETF and stated that "the ETF will be the world's first direct investment in physically settled Bitcoin, rather than derivatives, enabling investors to easily and efficiently enter the emerging cryptocurrency asset class."

On February 18, the company launched North America's first exchange-traded fund (ETF) tracking Bitcoin, and officially began trading on the Toronto Stock Exchange (TSX) in Canada under the trading code BTCC, offering two trading units: Canadian dollars and U.S. dollars. This move further expanded investment exposure to cryptocurrencies represented by Bitcoin.

After its official launch, Purpose's Bitcoin ETF fund exceeded US$80 million in trading volume within an hour, with a first-day turnover of US$165 million, accounting for 1.6% of the average daily turnover of the Canadian stock market, far higher than the average first-day trading volume of newly listed ETFs in Canada.

According to Glassnode's statistics, as of March 1, 2020, the fund's assets under management have reached US$657 million, accounting for approximately 0.53% of Canada's total ETF market size, far exceeding the average asset management scale of a single ETF in Canada (currently there are 478 ETFs in the Canadian ETF market with a total asset management scale of approximately US$122.9 billion).

The Canadian market's recognition of the fund has also prompted other investment institutions to follow suit. Throughout February, three Canadian-approved Bitcoin ETFs were listed on the Toronto Stock Exchange, namely: Purpose Bitcoin ETF (trading code BTCC), Evolve Bitcoin ETF (EBIT), and CI Galaxy Bitcoin Fund (BTCX).

In this regard, Chen Han from Huobi Research Institute told Jiemian News reporters that "Canada has often been a pioneer in financial innovation, launching the first generation of modern ETFs in 1990 and the first marijuana ETF in 2017, both of which were regulatory approvals before the market was fully verified."

The Canadian market's lead has also led American investment institutions to once again launch an attack on Bitcoin ETF products. The Bitcoin ETF applications submitted to the SEC include SkyBridge Capital mentioned above and VanEck Associates, which has repeatedly failed. The SEC also disclosed that VanEck's Bitcoin ETF application has entered the review process. The regulator now has 45 days to approve or reject the application or extend the review period. Inspired by the opening of the Canadian market, American investment institutions saw the possibility of launching the first Bitcoin ETF.

In this regard, Michael Sonnenshein, CEO of Grayscale Investments, the world's largest public holder of Bitcoin (with nearly 700,000 Bitcoins), made it clear in an interview with Business Insider that "the key question for the US SEC to approve cryptocurrency ETFs is 'when' rather than 'whether', but these decisions are ultimately in the hands of regulators."

Huobi Research Institute told Jiemian News that “the size of the Canadian ETF market is only 2.8% of that of the U.S., and the service restrictions of U.S. brokers have also hindered the influx of U.S. retail investors into the Canadian ETF market to a certain extent. Although Canadian regulators were inspired by the advantages of cryptocurrency ETF products and rushed to launch this product, the huge and complex U.S. market means that they may have more concerns and it is difficult for them to follow the same innovation path as Canada.”

At the same time, Chen Han from Huobi Research Institute also said, "Financial products such as Bitcoin ETFs are more friendly to ordinary investors. Once regulatory barriers are overcome, on the one hand, it can open up the exposure of traditional financial investors to invest in crypto assets, and on the other hand, it will also boost the confidence of related companies on the crypto asset side."