Last Bitcoin ETF Hope Standing

September 30, 2019 You argue better market stability, but over the last few days, we’ve seen a complete crater in bitcoin prices, for whatever reason. If I’m this skeptical regulator, and I look at price more than other elements, these last few days has to give me pause.

Hougan: One of the hallmarks of the bitcoin market is that it’s historically been extremely volatile. We expect it to continue to be volatile in the future. I know you were talking about a specific move. But if you look back over history, there've been six periods where the bitcoin market has gone down more than 70%, which is a lot. Now, of course, over that entire period, the market’s up about 1,000,000%, literally. But it has periods where it falls down a lot.

I actually don’t know that the SEC is worried about the fact that the asset can be volatile. We have plenty of ETFs tracking volatile markets that exist for a while. Volatility is a volatile market. Nature gas is a volatile market.

What they're really worried about is, are the underlying markets being manipulated without a surveillance sharing agreement? Bitcoin trades on a mix of regulated and unregulated exchanges. And whether it goes up or down shouldn’t really matter to the application. What matters is whether that’s a fair and reasonable price, or whether it’s being manipulated by the market.

We’ve made the argument that of course Bitcoin is volatile. There's no reward without risk. But what we were trying to argue is that the underlying markets, despite that volatility, are functioning well. There are arbitrages in place; it’s a two-sided market. And it’s an increasingly regulated market that can support ETFs. Who would buy your bitcoin ETF in the first month?

Hougan: We’re out there right now, talking to financial advisors and family offices and small-sized institutions. Many of whom would love to have a safe, secure way to provide exposure to some or all of their clients to digital assets. Right now, they're not really set up.

The thing about the bitcoin market is, there are great ways for retail investors to invest today, through Coinbase and other services that are perfect for small investments. There are good ways for large institutional investors to invest in private funds, like the one Bitwise and other people offer. There's not a great way that fits into the workflow easily for financial advisors to invest.

There is a real market for this. We can help financial advisors’ portfolio problems, finding noncorrelated source of returns. What is the expense ratio for this ETF?

Hougan: Our bitcoin fund, which is a private fund, has an expense ratio of 1% for the institutional share class, and 1.5% for the retail share class. You can use those numbers as a stalking horse. But we haven't published the expense ratio yet.

One important thing to keep in mind is that every new asset class that’s been opened up in ETFs has taken a long time. It took multiple years to get bond ETFs over the line. It took about $12 million in legal fees to get the SPDR Gold Trust (GLD) over the line. We just had nontransparent active ETFs—which were filed when you and I were children—get approved. It takes a long time. The SEC does due diligence. They're doing that. And honestly, they’ve been asking great questions.

Contact Drew Voros at [email protected]

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