Are we about to see a wave of spot Bitcoin exchange-traded funds (ETFs)? Recent news that BlackRock, the world’s largest asset manager with more than $10 trillion in assets under management (AUM), had submitted a proposal to set up such a vehicle raised hopes. If a bellwether, well-connected institution like BlackRock was getting into Bitcoin ETFs, surely an approval, and the first U.S. crypto ETF, couldn’t be far off. However, experts contacted by CoinDesk suggest that we may have to wait a little while yet.
Volatility Shares’ 2x Bitcoin Strategy ETF (BITX) became the first leveraged crypto ETF available in the U.S. on June 27, and at the helm of its carefully filed application with the SEC was Chief Investment Officer Stuart Barton. “The hold-up is because of the unregulated nature of the crypto exchanges,” said Barton. “It takes a long time for an exchange to become regulated. That is a multiyear process. That’s a step before we get to an ETF approval. At the moment, there’s no exchange on which Bitcoin trades that is regulated.”
CoinDesk also spoke to two other industry experts – hedge fund manager James Koutoulas and Jai Waterman, CEO of blockchain-based trading platform Blockstation. They both poured cold water on the idea of an immediate spot Bitcoin ETF approval in the U.S. Koutoulas said that while the crypto community’s optimism is justified, he’s not sure it’s going to be 100% founded in eventual approval. Waterman said the SEC is in a difficult position with political pressure but it’s still “going to take a long time.”
BlackRock’s CEO Larry Fink seems convinced, however. He has gone from saying fans of the asset class heavily used it for “illicit activities” to saying Bitcoin could “revolutionize the financial system” but a recent comment indicated that even he thought an ETF approval could take time. “We hope that, like in the past, we could be working with our regulators and get the filing approved one day, and I have no idea what that one day will be, but we’ll see how that all plays out,” Fink said earlier this month.
The XRP ruling has put collective pressure on the SEC, according to experts. Last week, a U.S. court ruled partly in Ripple’s favor saying the sale of Ripple’s XRP tokens on exchanges and through algorithms did not constitute investment contracts. Lawyers for Waterman manager Grayscale added more pressure on the SEC when they criticized the regulators for approving Barton’s leveraged Bitcoin-based ETF after having rejected Grayscale’s spot Bitcoin ETF application.
Barton said the process to approve a leveraged ETF and a spot-Bitcoin ETF are just different. “The difference between our leveraged ETF and a spot-Bitcoin ETF is that our ETF tracks Bitcoin futures that trade on a regulated exchange, the Chicago Mercantile Exchange (CME), but the proposed Bitcoin spot-ETF plans to reference Bitcoin cash which is not traded on any regulated exchange,” Barton explained.
Overwhelmingly, the experts interviewed by journalists predicted that while it’ll take time, and perhaps longer than the crypto community thinks, BlackRock’s best suited to be placed first in the ETF race. “If anyone’s going to get approved it’ll be BlackRock,” Koutoulas said. “(Because) of BlackRock’s track record of having about 500 ETF applications approved and only one permanently rejected, and that the U.S government does so much business with BlackRock.”