There has been massive demand for investment securities backed by cryptocurrencies for a very long time now. And, the unprecedented success of the Bitcoin Futures ETF proves that very fact. However, the Chairman of the U.S Securities and Exchange Commission remains unconvinced of the merits of the novel asset class.
During a recent interview with Yahoo, SEC Chief Gary Gensler expressed his concerns about investor protection in the crypto-market. He also spoke about his unchanged outlook towards ETFs backed directly by the top cryptocurrency. He said,
“Investors aren’t protected the way they are, whether they go into the stock or bonds markets that we’ve overseen so long. Without that, I think it really is, as I’ve said to others, a bit of the Wild West.”
Since cryptocurrencies don’t fall under the remit of investor protection yet, the regulator is concerned about investors falling prey to “fraud, manipulation, front running, and other abuses” in the market.
Gensler has repeatedly compared the crypto-industry with the outlaw days of the American frontier by referring to it as the “Wild West” on several occasions. However, these comments could also be translated as a veiled denial of the rumored possibility of spot ETFs receiving approval from the SEC.
Spot Bitcoin ETF – A distant dream?
This has led to many ETF experts also taking a “bearish” position towards the issue. Nate Geraci, President of The ETF Store, for instance, believes that the possibility of a spot ETF launch anytime soon is far-fetched. He said,
“The SEC doesn’t believe they can properly surveil crypto exchanges and combat potential fraud and manipulation. While the Futures-based Bitcoin ETFs are a positive first step, it appears that investors might be waiting a while on a spot product.”
I was thinking second half of 2022, so O/U say July 1st of next year.
But honestly, after hearing those Gensler comments, I just don't see how that happens. How long will it take for Congress to develop a regulatory framework here?
I'm now starting to think 2023 or beyond.
— Nate Geraci (@NateGeraci) October 25, 2021
Once investors gained the ability to invest in the first-ever ETF products linked to Bitcoin Futures contracts last week, asset managers started rushing to the financial watchdog in the hopes of getting BTC Spot ETF approval.
Grayscale Investments had submitted a filing to convert its Bitcoin trust (GBTC) to a Bitcoin spot ETF. This fueled hopes that the regulators will expedite the process of launching Bitcoin spot offerings.
While the recently launched ETFs are pinned to contracts traded on the Chicago Mercantile Exchange, a spot or physical ETF would be linked to Bitcoin directly. Many in the past have argued that the latter would have been a preferable choice for investors.
Interestingly, the firms behind the three recently-launched Bitcoin ETFs are already looking to lower their management fee as the close-cut competition between them is culminating in a “brutal fees war.” With three ETFs already receiving approval and at least five more in the pipeline, the newer ETFs are undercutting their management fees to attract more investors to their camp.
This could severely undermine the “first-mover advantage” enjoyed by ProShares ETF as investors could switch in the case of a significant fee difference.