[Editor's note - Update: SEC Rejects Bitcoin ETF]
The much-awaited Securities and Exchange Commission decision on whether to approve or disapprove the Winklevoss Bitcoin ETF (COIN) may not actually come until Monday, March 13.
The deadline to rule on this ETF is officially tomorrow, but there’s a clause in the SEC’s policy that if a deadline falls on a weekend, it’s pushed to the next federal business day, according to Spencer Bogart, managing director and head of research at Blockchain Capital.
One more day of anticipation on whether the bitcoin ETF is a go wouldn’t be a big deal if it weren’t for the fact that the industry seems to be able to talk about little else. In fact, Friday, bitcoin prices raced to a new record high above $1,300 in anticipation of a SEC “yes” to this fund.
Here’s why this is such a big deal …
Bitcoin’s Big Moment
The Winklevoss Bitcoin Trust (COIN) would be the first ETF to offer investors everywhere easy, transparent access to this peer-to-peer, unregulated digital currency that has gathered quite a following since the financial crisis of 2008.
That access would be made possible to anyone without the need to create separate accounts with bitcoin exchanges.
To be fair, as Bogart puts it, adoption and use of bitcoins and its network have already been growing rapidly without the help of the ETF wrapper. Still, a bitcoin ETF should accelerate the already-fast-growing footprint of bitcoins.
Why A Bitcoin ETF Matters
“A bitcoin ETF would be a significant catalyst for a few reasons,” Bogart said. “For one, it would open the gates of bitcoin to institutional capital. Among other things, this could have a profound impact on price.”
Most institutional investors have mandates that allow them to only invest in registered securities, and bitcoin isn’t one, he says. But in an ETF, it would fit that bill. If nothing else, having a bitcoin ETF approved would improve “public perception” and help manage some of the regulatory risk many associate with bitcoin’s unregulated status.
“In addition, retail investors would be able to get exposure to bitcoin directly from their brokerage accounts instead of establishing a separate account with a bitcoin exchange,” Bogart added. “The way to think about ETF approval is as a low-probability catalyst that could accelerate bitcoin’s already-rapid adoption growth.”
COIN, led by Cameron and Tyler Winklevoss of Facebook fame, was first put in registration more than three years ago.
Designed as a grantor trust, COIN would do in-kind creations and redemptions much like a physical commodity ETF such as the SPDR Gold Trust (GLD), and the fund would use the Winklevoss’ own bitcoin exchange Gemini to set the price.
That comparison to gold has been often touted. In an interview two years ago, the Winklevoss brothers told an audience of advisors that bitcoins are “better than gold” as a store of value, inflation hedging and access to a still-growing global ecosystem that’s the future of the payments industry.
That’s because the Winklevoss brothers see bitcoin as a commodity more than as a currency. “An investment in the bitcoin ETF is an investment in the future performance of bitcoin and the underlying bitcoin protocol, not an investment in a bitcoin company,” they said in an interview in 2014.
Mike Venuto, head of Toroso Investments, argues that, to investors, the bigger picture is that bitcoin is all about global commerce.
In a recent blog, he offered this perspective:
In a recent white paper, Deloitte & Touche described bitcoin as an “Internet of value exchange.” The real value of bitcoin is about the utilization of the infrastructure on which it is based. The more bitcoins are mined, or “hashed,” the more a free encrypted version of the internet is expanded. This self-reinforcing infrastructure that becomes more dependable as more people participate, is called the “blockchain.” It can be used in a way to transfer securities, to create artificial intelligence, secure real estate or art transactions and, potentially, for all kinds of other transactions. Look at bitcoin this way: 20 years ago, the internet democratized access to information, and now the bitcoin blockchain is democratizing access to commerce.
For now, access to bitcoin in an ETF can be found in the ARK Web x.0 ETF (ARKW), which has a small allocation to bitcoins obtained through publicly traded shares of Grayscale’s Bitcoin Investment Trust (OTCQX: GBTC). That allocation currently sits around 5% of that portfolio.
But the launch of a strategy such as COIN would be “consequential,” Venuto says.
“In an age where asset allocation is its own asset class, a bitcoin ETF could have a place in many portfolios,” he said. “You can purchase bitcoins today. So, putting bitcoins into an ETF structure is not about making them accessible in a basic sense. It's about making bitcoins more accessible—that is, investable for any investor within a brokerage account.”
Contact Cinthia Murphy at [email protected]