Bitcoin-Linked ETFs Are Booming — Could Bitcoin Funds Be the Next ‘Holy Grail’?

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The early enthusiasm for Bitcoin-linked exchange-traded funds has somewhat waned. While a far cry from “pure” Bitcoin-only ETFs, these gave traders and investors hope of paving the way for overall approval. Now, some investors and experts have their eyes set on what many see as “the real thing” — a spot Bitcoin ETF.

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Last month, the first Bitcoin futures ETF, the ProShares Bitcoin Strategy ETF, started trading on the New York Stock Exchange in what several experts saw as a major win for the crypto industry, both from a regulatory standpoint and an adoption one. The move was quickly followed by Valkyrie, as the firm launched its Valkyrie Bitcoin Strategy fund on the Nasdaq. Several other ETFs are on the line to be approved. Both funds saw incredible traction in a matter of hours, and in turn, Bitcoin rose to new all-time highs. 

However, for some experts speaking at the Bloomberg Financial Innovation Summit on Nov. 4, the Holy Grail remains a physically backed product, according to Bloomberg.

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MicroStrategy CEO Michael Saylor, speaking at the summit, said that “once these spot ETFs roll, I think you’ll see billions, then tens of billions, then hundreds of billions, then trillions of dollars flow into them,” according to Bloomberg.

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Valkyrie has already applied for a spot Bitcoin ETF, as well as other “crypto adjacent exposure” ETFs, and plans a launch — pending Securites and Exchange Commission approval — in 2022.

Valkyrie CEO Leah Wald told GOBankingRates that there clearly is pent up demand for Bitcoin exposure in an ETF wrapper. “One only needs to look at the response to Bitcoin futures ETFs launched last month for evidence of this.”

“That said, while we do believe there will be significant demand for a spot Bitcoin ETF, the products currently available on foreign markets haven’t seen quite the gold rush many are expecting,” Wald said. “If approved, such a product would absolutely be a blockbuster fund, but I’m not sure we would see trillions in AUM [assets under management]. It just doesn’t seem realistic.” She would, however, “love” to see those numbers happen, she added. 

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Other Bitcoin experts don’t agree with Saylor’s premise, noting that there are other current Bitcoin-related events that are more important to advance adoption. 

Brock Pierce, Bitcoin Foundation chairman, told GOBankingRates that “while it is great to see progress being made with Bitcoin ETFs, there are so many positive developments that are happening.” 

“From countries that are adopting direct holdings of Bitcoin to two prominent mayors in Miami and New York accepting Bitcoin as a form of payment for their salaries,” Pierce said. “All these things matter a lot more, and people should not be focusing on one single event as the ‘Holy Grail.'”

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The sentiment was echoed by Hartej Sawhney, CEO and managing partner at Zokyo, who told GOBankingRates that a Bitcoin ETF “institutionalizes” Bitcoin by involving middlemen — “in this case, Wall Street.”

“Every Bitcoin holder has voting power and influence on the future of Bitcoin. A Bitcoin ETF puts an immense amount of influential voting power in the hands of a single custodian,” he said. “Retail users may find themselves frustrated when their Bitcoin ETF does not earn as much returns as compared to those that hold their own keys to their own cryptocurrencies.”

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Unlike Bitcoin ETF applications that the SEC has rejected, the ETFs that were approved were based on futures contracts and were filed under mutual fund rules that SEC Chairman Gary Gensler has said provide “significant investor protections.” This comes eight years after the first Bitcoin ETF application was filed and follows the SEC stalling on such approvals.

Hester Peirce, a Republican member of the SEC, said the regulator has been public about why it rejected a spot product. “The reason is that the Bitcoin markets don’t look like our regulated securities markets,” she said at the summit on Nov. 4, according to Bloomberg. “The thing that regulators are most comfortable with is markets that look like our own.”

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About the Author

Yaël Bizouati-Kennedy is a former full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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