Over three years ago, in 2013, the corporation in the Winklevoss twins, Cameron and Tyler, Winklevoss Capital Management LLC, launched the first proposed bitcoin ETF, the Winklevoss Investment Trust, planning to trade around the HFT-dominated BATS exchange. The SEC is expected to make a decision upon it by March. A 2nd group, SolidX Partners followed last July seeking SEC approval for its bitcoin IRA, SolidX Bitcoin Trust, which also would be on the NYSE.
Then on Friday, Grayscale Investments, a unit of Barry Silbert’s Digital Currency Group filed using the SEC to list their own Bitcoin Investment Trust about the New York Stock Exchange: as with the prior two attempts, the fund hopes to obtain SEC approval to expand the viewers for that virtual currency. Initially, the trust will aim to launch with $500 million, the filing said, although the target is susceptible to change. At Dec. 31, it had about 1.8 million shares outstanding. Based on a net asset value 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 the new filing if approved, the trust would operate as being a traditional ETF, which means specialized traders would create and retire shares based on demand.”
Two Wall Street firms, KCG Holdings Inc. and Wedbush Securities Inc., are in discussions to provide as authorized participants, according to the filing. Additionally, the fund’s trustee will probably be Delaware Trust Co., and also the transfer agent will be Bank newest York Mellon Corp., in accordance with the filing.
The purpose of a bitcoin-based ETF would be to offer an product that might be easier for investors to gain access to and would mute at least a number of bitcoin’s volatility, while it would hardly eliminate all of it, which could still make it a riskier investment than most other ETFs.
Moreover, approval “could prove an earlier test based on how an SEC run from a Donald Trump appointee will greet innovations which may raise investor-protection or some other market-structure issues.” Furthermore, the benefits of being first with a major exchange might be big, assuming that bitcoin does are able to establish itself as 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, attracts investors for a few of the same reasons as bitcoin… even when many physical hard-core “gold-stacker” fans mock both the concept of a paper gold representing their physical holdings, while relentlessly ridiculing the notion that “digital money” found in a server somewhere, is in any way safe (following recent dramatic breaches of any Chinese bitcoin exchange, there is a point).
Earlier this month, Needham analyst Spencer Bogart wrote that “it appears there is certainly significant pent-up demand in the investment public for this sort of vehicle” although he conceded that “the chance of one being approved in 2017 was extremely low, expecting the SEC may be cautious about this kind of risky asset.”
Indeed, among the lawyers who helped craft the applying for the purpose is the first-ever bitcoin exchange-traded fund (ETF) told Coindesk, he is doubtful the SEC will approve this kind of request any time in the near future. The critique, courtesy of former Gemini general counsel David Brill, is specially 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 point out he is a “proponent” of the development of bitcoin ETFs and pro-bitcoin regulation more broadly, the prognosis will not bode well for the success. In conversation with CoinDesk, Brill explained which he believes factors like China’s impact on the buying price of invest in bitcoin make an approval unlikely.
Specifically, he was quoted saying that “It seems unlikely, among the rest of the reasons, that the commission will almost certainly wish to move forward using a product where the major trading is completed on an exchanges that is probably not following our AML guidelines.” Put simply, China’s domination of bitcoin trading – around 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 25 years, Brill worked at Thompson Financial from 2003 through 2010, when it acquired Reuters. Just before departing Gemini a year ago, Brill worked because the The Big Apple-based exchange’s general council, where he stated he helped make the legal infrastructure of the exchange and craft a variety of responses to amendments to its S1 filing.”
Though Brill does assume that that the bitcoin ETF will ultimately be permitted to do business on the major stock exchange, he explained the SEC is going to be unlikely to do so while up to 95% of all the bitcoin transactions are completed in China.
That, in addition to the China government’s recent crackdown on cryptocurrency exchanges and anti-money laundering practices, creates a level unlikely approval, he said.
“It’s more the overwhelming largest part of trading is not being done in the usa, and being carried out in a area in which the regulations usually are not consistent together with the rules here,” said Brill.
In accordance with Brill, among the big hopes for even more acceptance and continuing development of bitcoin is the one and only Donald Trump. Speaking shortly before Donald Trump’s inauguration as President, Brill said he is “cautiously optimistic in regards to a more promising environment for bitcoin companies in the future.”
Coming from a strictly small business perspective, he predicted Trump would likely have a pro-bitcoin stance. However, considering concerns regarding a possible “trade war” with China following Trump’s expected policies, Brill said the predominance of bitcoin trading inside the nation may well be a hindrance. He concluded: “I would like to try to view what approaches might work to make it easier for bitcoin companies to expand throughout the US. Because at this time, it is rather difficult because every state has something different that they want.”
Ultimately, bitcoin investors might have to make do without bitcoin investment for a time, especially if as some suspect, not only Chinese traders, but local HFTs have got over trading from the extremely volatile product. Still, which might be the best thing: failing to get ETF approval will just keep bitcoin extremely volatile, which is why it is the darling asset of a subset of traders starved for volatility within a world where central banks have eliminated just about any daily gyrations from your equity class. Therefore, we might expect bitcoin vol to only grow, not decline, in the process making the attainment of the bitcoin “holy grail” very much more improbable.