SEC’s Approval of Bitcoin ETF May Signal Shift in Crypto Stance

Regulator gives nod to leveraged product while investors await ruling on spot bitcoin fund.

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Reviewed by: Lisa Barr
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Edited by: Ron Day

The Securities and Exchange Commission’s approval last week of a Volatility Shares’ bitcoin exchange-traded fund is raising speculation that the regulatory agency may have weakened its resistance to a spot bitcoin ETF. 

The SEC approved the 2x Bitcoin Strategy ETF (BITX) from Volatility Shares, a small issuer managing $162.9 million in three leveraged volatility index ETFs. The firm is set to launch the leveraged bitcoin ETF, which tracks bitcoin prices using derivatives, on June 27. 

The approval comes barely a week after BlackRock Inc., the world’s biggest ETF issuer, filed for permission to issue the first spot bitcoin ETF. The SEC has so far turned down dozens of similar requests to issue ETFs that actually own the cryptocurrencies—even though they are available in Europe and Canada—saying the filings don’t contain sufficient safeguards against fraud. 

“The approval of BITX may indicate the SEC is beginning to soften their overall stance on crypto-related ETFs,” The ETF Store President Nate Geraci said in an email. “That could bode well for the prospects of spot bitcoin ETFs moving forward.”  

The only bitcoin-related ETFs so far approved by the SEC, including BITX, are ones that track the price of bitcoin using derivatives including futures.  

BlackRock, Invesco Filings 

Bitcoin gained 14% last week and crested $30,000 after BlackRock filed for its spot bitcoin ETF and was quickly followed by similar filings from Invesco, WisdomTree Inc. and Bitwise Asset Management. 

A big winner for this has been the ProShares Bitcoin Strategy ETF (BITO), the biggest bitcoin ETF. The fund recently had its largest weekly inflows in just over a year, and rose 17% last week.  

BITX uses derivatives to match twice the price movements of bitcoin each day. Like other leveraged ETFs, it is not meant to match the returns of bitcoin over any longer period. With a hefty 1.85% expense ratio, the fund is meant for short-term trades by very active traders and should not be used by buy-and-hold investors.  

Geraci, who has predicted that a spot bitcoin ETF won’t be issued this year, said he is at a loss to understand why the SEC is approving a complicated leveraged bitcoin ETF ahead of a more straightforward spot crypto fund. A leveraged ETF uses derivates and other financial products to amplify the returns of an investment.  

“It seems absolutely ridiculous that investors are getting a 2x leveraged bitcoin futures ETF before they have access to a straightforward spot bitcoin ETF,” he wrote. “It takes some serious mental gymnastics to justify how the former is acceptable for investors, but not the latter.” 

Volatility Shares said in an emailed statement that it can’t comment on interactions with the SEC. The company also said its compliance with the SEC’s regulations should comfort investors, “in contrast to the black box model of many crypto exchanges.” 

 

Contact Gabe Alpert at [email protected]            

Gabe Alpert is a former data reporter at etf.com with over seven years’ experience in financial journalism. He also previously contributed reporting and analysis to Barron’s Magazine, Investopedia and other publications.