Bitcoin ETFs May Come Next Week

The ETF world’s favorite parlor game may soon come to a close.

After years of speculation and regulatory guessing games, several futures-based bitcoin ETFs are slated to become effective and would be fair game for the three ETF exchanges to list.

While the futures-based format preferred by SEC Chairman Gary Gensler isn’t the preferred choice of crypto enthusiasts, a bitcoin ETF would mark the conquering of the final frontier of what can underlie an exchange-traded product.

Current Bitcoin ETF Filings

ETF Rule & Effectiveness

Regulators have shot down efforts to launch a bitcoin ETF ever since the Winklevoss twins submitted their Winklevoss Bitcoin Trust to the SEC eight years ago, but the so-called ETF Rule passed in 2019 has opened a door for issuers to bring bitcoin exposure to the exchanges with minimal friction.

Under that rule, ETF filings are automatically given relief from the Investment Company Act of 1940 after 75 days, provided they meet a set of standardized listing requirements. The SEC may request additional information or changes to a prospectus during that period, and the exchanges also perform due diligence ahead of a launch.

In other words, unless the SEC requests that an issuer pull its filing or make significant changes to it, any qualifying ETF—including those based on bitcoin futures—will become effective and cleared for a debut on the markets.

According to bitcoin ETF filings tracked by my colleague Sumit Roy, the Invesco Bitcoin Strategy ETF and the ProShares Bitcoin Strategy ETF would become effective on Monday, Oct. 18 by virtue of their ’40 Act exemptions. The VanEck Bitcoin Strategy ETF would become eligible on Oct. 23, as its 75-day waiting period expires on the Saturday prior.

Teucrium Trading filed for a bitcoin futures fund more than two months prior to Invesco’s and ProShares’ filings, but it filed under the Securities Act of 1933 and doesn’t qualify under the ETF Rule.

The filing date isn’t the only factor at play here as the SEC continues to take a cautious approach to these products. The ProShares and Invesco funds reserve the right to buy into foreign-listed vehicles that directly hold bitcoin, which could raise regulatory hackles.

However, the Valkyrie Bitcoin Strategy ETF (BTF), which sees its 75-day waiting period expire on Oct. 25, is a pure futures ETF and can only hold futures contracts. It’s also the only one out of the three to publicly announce a ticker and an exchange.

Race To List

If any filings become effective, the race kicks off to list those ETFs for trading and gain what may be a critical first-mover advantage. The three U.S. exchanges already work with ETF issuers ahead of their expected effective date to verify that their products meet any additional exchange-specific requirements.

However, representatives from the exchanges told ETF.com they are taking additional steps to handle what they expect will be a hectic, high-volume series of launches.

Decision On Physical ETFs?

Investors who don’t want an ETF-style exposure to bitcoin through the proxy of futures contracts may not have to wait long for a fund holding bitcoin directly.

Speaking on CNBC this week, Van Eck Associates CEO Jan van Eck said the SEC is required by statute to issue an approval or rejection of its VanEck Bitcoin Trust on Nov. 14 after multiple delays. The SEC would be in a bind to explain why it would allow futures-based bitcoin exposure through the ETF wrapper and continue to delay a direct-exposure play.

That is why Todd Rosenbluth, head of ETF and mutual fund research at CFRA, believes the SEC will hold off on any kind of bitcoin ETF approval until next year.

He argues that regulators are weighing several factors, from trying to avoid a first-mover advantage that issuers can say is picking winners and losers, to the broader question of investor safeguards for a novel asset class.

“I don’t think the SEC is in a rush to move these products forward,” Rosenbluth said. “I think they will get approved, but I think the SEC is going to set these products up for greater success by the asset managers and with … stronger investor retention in 2022 than where we stand today.”

Contact Dan Mika at [email protected], and follow him on Twitter