Bitcoin ETF Delayed Again, but Wall Street Already Has Its On-Ramps

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On August 13, 2019, news broke that the U.S. Securities and Exchange Commission (SEC) has put three bitcoin exchange traded funds (ETFs) on the regulatory backburner.

The SEC has delayed decisions on filings by VanEck/SolidX, Bitwise Asset Management and Wilshire Phoenix until October 18, October 13 and September 29 of this year, respectively. On these dates, the SEC will have to either accept or reject the filings.

History has not been kind to bitcoin ETF filings, as more than a dozen have been pulled by their sponsors or scrapped by the SEC since 2013. With each failed attempt, the SEC rehashes the usual arguments that the market is too immature, easily manipulated and lacking in internal controls for proper custody to approve a bitcoin ETF. The SEC’s persistent rejections has meant that, over the years, eager anticipation for these products has morphed into assumption that they will be delayed or denied, so much so that a common sentiment on community hubs like Twitter is that ETF news is hardly news now and more like a self-fulfilling prophecy at this point.

Not too long ago, Bitcoin adherents treated the bitcoin ETF like the holy grail of on-ramps for institutional investors who lack regulated access to market. Under this supposition, the coming of an ETF would presage a flood of fresh capital into the asset. But then the gauntlet of delays evaporated any hope that this liquidity would come from an ETF. 

The promise of an ETF aside, however, institutional money has found its way into the market all the same.

SEC Approval Unnecessary

Indeed, there are plenty of investment vehicles geared toward accredited investors hungry for exposure to bitcoin. The CME and Cboe’s bitcoin futures are two of the more prominent examples, even as the latter ceased operations in Q1 of 2019.

Both of these options don’t offer investors spot market access to bitcoin — only derivatives contracts based on its future price. 

But in the past year, options that give investors direct access to bitcoin have also been growing. Barry Silbert’s Grayscale Investments, for example, currently manages $2.7 billion in crypto assets. The vast majority of these holdings, over 75 percent, are in its Bitcoin Investment Trust (GBTC), which are traded through OTC Markets Group, a New York-based over the counter financial market. In 2019 alone, Grayscale has accrued just over $200 million in investments, some 80 percent of which has come from institutional investors.

“As Grayscale is the largest digital currency asset manager, it might be a good indicator of the broader market sentiment and behavior,” Marissa Arnold, Grayscale’s director of communications, told Bitcoin Magazine.

Growing client interest from Grayscale’s competitors corroborate Arnold’s comment. Fidelity Digital Assets, the cryptocurrency investment arm for one of the world’s largest asset managers (with $2.6 trillion under its purview), went live at the beginning of 2019. In a CNBC interview, Fidelity Digital Asset Head Tom Jessop said that 22 percent of the 450 institutions that the company surveyed already hold bitcoin in their portfolios and plan to double their positions in the next five years. Some of its own clients have been using Fidelity’s services to purchase and custody bitcoin since January 2019.

Accredited Interest in Bitcoin

With one of the world’s premier asset managers pioneering institutional interest in bitcoin alongside crypto heavyweights like Grayscale, the narrative of accredited interest in bitcoin is as strong as ever. And the trend plays into the conjecture that these institutions bought the bottom of the bear market from November 2018 to April 2019 and catalyzed bitcoin’s most recent price increase.

Whether or not this is true, institutional demand is apparently growing alongside institutional-grade investment vehicles. Newcomer products like LedgerX’s bitcoin swaps (not to be confused with its bitcoin futures, which have yet to be approved by the Commodity Futures Trading Commission, contrary to news reports from the end of July 2019). The Intercontinental Exchange also has a bitcoin futures investment platform, dubbed Bakkt, that has been forthcoming for quite some time. Nasdaq’s own bitcoin futures have been anticipated for some time, as well.

With these investment options on the horizon coming to complement those already available, institutional investors aren’t holding their breath (or withholding their funds) for something like a bitcoin ETF. If and when the ETF comes, it certainly will give Wall Street another on-ramp to bitcoin — but it will be one of many and far from the end-all-be-all.

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