John Hyland is the global head of exchange-traded products for Bitwise Asset Management, a position he took less than a month ago. Hyland was a key figure in bringing the first oil and commodity ETFs to market when he was CIO of United States Commodity Funds. Now he’s hoping to use that expertise to bring some of the first U.S.-listed cryptocurrency ETFs to market with Bitwise, a firm that launched a private crypto index fund last year.
While the Securities and Exchange Commission has yet to approve any bitcoin or cryptocurrency exchange-traded products, Hyland believes that could change relatively soon. Read on to find out when Hyland sees the first crypto ETF coming to market and what form it will take.
ETF.com: Is the ETF industry any closer to addressing the SEC’s concerns about cryptocurrency funds than it was several months ago?
John Hyland: I do think we’re closer and there are four reasons why. The first has to do with custody. Right now, we custody our private fund's crypto assets with a small regulated custodian. The big five ETF custodians are looking, but not yet jumping into, offering the service.
However, I spent half an hour last week talking to one of the three largest ETF custodians, and I think the way forward for them will be to hire existing regulated custodians, like ours, as "subcustodians" while they build up their own expertise. That solves one major issue for the SEC.
Of course, an ETF that holds futures or swaps on the coins, and not the coins themselves, could already be custodied by any one of the ETF custodians that also handles futures-based commodity or currency ETFs.
The second reason has to do with enhanced regulated trading. A number of the major ETF market-making shops are setting up crypto trading desks. In addition, even some of the big stock exchanges are setting up regulated trading platforms. Thus, a crypto ETF, and its market makers, will be able to transact on platforms that have similar regulatory status to what they do with equities. This will all happen this year, or next year at the latest.
Reason No. 2 also means that reliable third-party pricing will be available for setting iNAVs and NAVs.
Finally, one concern of the Division of Trading and Markets at the SEC is how crypto ETFs will behave in real life. Well, they already exist in Europe (four of them), on regulated exchanges (Nasdaq), in size ($600 million in AUM), and for several years now (since 2015).
Unless these funds have some sort of major failure to function as ETPs, this will actually be the SEC's live experiment.
ETF.com: How likely is it that we’ll see a bitcoin or cryptocurrency ETF approved anytime soon?
Hyland: I think we get them sooner rather than later. But I also think that if we don't see any action by the SEC in the next two months, we’ll jump to 2019 and beyond. I don't see the SEC going from red light to green light anytime near the midterm election. It’ll make them gun-shy.
I handicap the odds of a U.S. ETP in crypto as follows: 20% chance in 2018; 60% chance in 2019; and a 20% chance beyond 2019.