Don't Count on a Spot Bitcoin ETF, Volatility's Barton Says

Excitement over a spot bitcoin ETF is palpable. Whether it is because of BlackRock Inc.’s entrance into the race or Grayscale’s lawsuit against the SEC, it feels like something big is going to happen and the doors to the first spot bitcoin ETF are about to swing wide open.  

Most analysts and investors are saying the same thing—the likelihood of a spot bitcoin ETF launching over the next several months has seldom been higher.  

But are people getting ahead of themselves? Yes, according to the issuer of the first leveraged crypto exchange-traded fund. 

I recently chatted with Stuart Barton, co-founder and CIO of Volatility Shares, the issuer behind the Volatility Shares 2x Bitcoin Strategy ETF (BITX), a $24 million fund that launched several weeks ago.  

And he doesn’t think a spot bitcoin ETF is coming anytime soon.  

“There is a very interesting problem existing in the spot ETF race. Everybody seems to have brought the same sort of structure and argument to regulators for years now. There’s been no real shift,” he told me. 
 
ETF issuers have been trying to launch spot bitcoin ETFs into the U.S. market for 10 years and counting, and each time they’ve been blocked by the SEC. Barton doesn’t think anything materially had changed with the current batch of filings that would compel the regulator to suddenly change its tune. 
 
“I don’t know if it’s ever going to work, because ultimately it falls foul of some of the SEC’s rules. They obviously have concerns,” he added.  

Other Approaches to Spot Bitcoin ETF Approval 

Could Barton’s take be a little bit of wishful thinking? Perhaps. He did note that his firm is working on other, more “innovative” approaches to bringing a spot bitcoin ETF to market.  

“There are other ways to achieve what people are trying to do, but it would seem, at the moment, people are stuck on this one idea,” he said. 

When I asked him what those other approaches are, he couldn’t tell me because they’re proprietary (which is fair enough!) 

Barton said he’s a believer in the idea that if there is “a set of rules laid out, one can use those rules—if you’re innovative enough—to come up with a solution within the rules.” 

He pointed to BITX as an example of a fund that launched despite doubts that it could ever pass muster with regulators.  

And his firm is trying to do it again with ether. To the surprise of many, Volatility Shares recently filed to launch an ether futures ETF, another product—like the spot bitcoin ETF—that’s been consistently denied by the SEC.  

Spot Bitcoin ETF Skepticism 

Barton’s skepticism about a spot bitcoin ETF runs counter to the view of most analysts and investors, who believe such a fund is imminent.  

Personally, I don’t know what to make of the spot bitcoin ETF saga. I get that hopes are high with everything going on with BlackRock and Grayscale. But it’s also easy to be pessimistic about spot bitcoin ETFs given the 10-year history of continued denials by the Securities and Exchange Commission.  

I also find it difficult to reconcile a possible spot bitcoin ETF with the SEC’s insistence that almost all crypto exchanges are operating illegally. 

Could the SEC be OK with a spot bitcoin ETF and not OK with the exchange that the ETF uses to purchase bitcoin?  

Compliance Space  

For his part, Barton thinks it will be years before a spot bitcoin ETF comes to market. 
 
“Eventually, something will come to market, [but] there’s a lot of give from both sides that’s needed. The SEC [is] becoming more accepting of crypto and [is] finding ways to view it in a way that’s conducive to further development,” he explained. “But at the same time, I think there’s going to have to be quite a lot of give in the crypto space around regulation.” 
 
“In my view, if it stays on the present course, that’s a couple of years away at least. Getting a bigger exchange regulated in a way that the SEC and/or the CFTC are happy with, that doesn’t happen overnight,” Barton added. “The level of compliance that’s needed, the reporting that’s needed—that’s a huge lift. And I think [drawing the crypto world] into that compliance space is going to take longer than many might expect.” 
 
That certainly seems like a fair read on the situation—at least if the decision on a spot bitcoin ETF is left in the hands of the SEC. On the other hand, there is a possibility that Grayscale could win its appeal and the agency could be forced to allow a spot bitcoin ETF. 

We’ll see how things shake out over the coming months.