There have been several questions about the crypto market that enthusiasts wanted answered this year. Will Bitcoin be able to break the $100,000 barrier? What other country or institution will adopt cryptocurrencies next?
With 2021 now less than three weeks away, the answers to many of these questions are starting to show. One central question over exchange-traded funds (ETFs) has gotten close to an answer - and it's not the one we might have hoped for.
A Lot of Hope for the Year
Bitcoin ETFs are an interesting and innovative way for investors to get exposure to the asset. Market analysis and general crypto enthusiasts have been hoping that a pure Bitcoin ETF gets approved in the United States, but nothing has materialized.
The push for a Bitcoin ETF has been pretty extensive. For years, several companies submitted applications to the Securities and Exchange Commission (SEC), who knocked each one back - primarily due to insufficient investor protection.
Entering 2021, there was a lot of optimism surrounding the industry. President Biden appointed Gary Gensler to head the SEC, and many believed he would be more crypto-friendly given his background and knowledge of the market. That hasn't exactly happened.
In his confirmation testimony with the Senate Banking Committee, Gensler explained the need for SEC rules to change with the market and emerging technologies. He said in part:
"In my current role as a professor at MIT, I research and teach on the intersection of technology and finance. I believe financial technology can be a powerful force for good – but only if we continue to harness the core values of the SEC in service of investors, issuers, and the public."
Even though Gensler understands the potential for cryptocurrencies to change the world, he and the SEC have cautiously approached the market. But, that doesn't mean progress hasn't been made under his watch.
Late in the year, the SEC approved ETFs linked to Bitcoin futures. The ProShares Bitcoin Strategy ETF launched in October and saw the second-highest ever first-day volume for an ETF, hitting just over $1 billion in volumes by the end of its opening day.
The ETF trailed only the BlackRock U.S. Carbon Transmission Readiness ETF, which clocked in at $1.16 billion when it launched back in April.
The ProShares ETF launched on the New York Stock Exchange with an opening price of $40.88. It closed the day at $41.94, selling 24.313 million shares.
Eric Balchunas, a senior analyst at Bloomberg, commented at the time that the ProShares ETF was arguably the largest when considering grassroots interest.
Hankering for the Main Course
Several other Bitcoin futures-backed ETFs have launched since then, though none has quite captured the same interest as the ProShares ETF.
Despite the excitement, many still treated Bitcoin-linked ETF as the gold standard. It won't take time for them to clamor for the real deal.
In early November, Rep. Tom Emmer and Rep. Darren Soto sent a bipartisan letter to Gensler, asking why the SEC had yet to approve a Bitcoin spot ETF while allowing those linked to Bitcoin futures to start operating.
"The SEC's approach to cryptocurrency regulation has been unacceptable. [...] If the SEC cannot outline the perceived material difference in risk profiles, then they should allow ETFs based on spot Bitcoin to be traded," Emmer said in a statement accompanying the letter.
Rejections, Rejections, Rejections
Following the approval of these futures-linked ETFs, several companies immediately tried again to submit applications for spot Bitcoin ETFs. But they've been shut down.
A few days after the Congressmen sent Gensler the letter, the SEC rejected an application from asset manager VanEck. In its report, the agency explained the ETF had failed to provide sufficient levels of investor protection.
WisdomTree, another asset manager, met the same fate in its application for a spot Bitcoin ETF. Earlier this month, the SEC rejected the company's ETF application for the same investor protection reasons.
With these rejections, it's looking less likely that we'll see a spot bitcoin ETF get approved in 2021. This will undoubtedly dash the hopes of many market enthusiasts.
It is especially disappointing, considering that several huge names in the market had been preparing to embrace Bitcoin ETFs fully.
In October, Barry Silbert - the chief executive of Grayscale INvestments - hinted that the company could convert its Bitcoin Trust into an ETF. Grayscale is currently the industry's largest asset management firm, holding north of $60 billion in assets under management.
But, even Grayscale will be skeptical about making any moves towards an ETF if the regulatory landscape isn't clear.