Bitcoin investments come in several forms. The most common iteration of an investment entry is when investors purchase direct units of a cryptocurrency and keep or trade it. However, like every top asset, financial instruments have also grown recently that are denominated in Bitcoin.
While the race for Bitcoin ETFs started a long time ago, regulators were not so keen to approve them. Now, things appear to have changed significantly. To commemorate this switch, it is worth understanding the state of the market and what to expect.
Getting Familiar With ETFs
For those who might not understand, exchange-traded funds (ETFs) are a type of financial derivative that tracks an asset's performance. They can be traded on a stock exchange, just like a traditional stock. ETF creators can structure them to track anything, from an individual commodity to a diverse collection of assets. You can even structure ETFs to track an investment technique if you like.
ETFs come in different forms, and they are especially famous because of their similarity to traditional stocks. They can be traded on exchanges, and the price of their shares can vary throughout the trading day.
ETFs' primary benefit is that they provide an additional way of getting exposed to an investment asset. Investors will also get to pay lower expense ratios and commissions to brokers. If your ETF focuses on more than one asset, you could easily diversify and ensure optimal risk management.
Crypto ETFs Torrid History
Cryptocurrency ETFs began increasing around the end of the first major bull cycle in 2017. At the time, investors were giddy about the market and hoped to increase their crypto exposure. So, financial service firms and crypto companies began applying for ETFs with the Securities and Exchange Commission (SEC).
Some top names that filed for ETFs included the Gemini Foundation, VanEck, and the Chicago Board Options Exchange (CBOE). Sadly, the SEC turned each of these firms down. The regulator argued at every turn that the ETF presentations didn't offer the correct levels of investor protection and that there were still significant dangers to those who purchase these shares.
Several of these firms applied more than once, making tweaks to their filings to please the SEC. Still, nothing meaningful came out of the process. The SEC either rejected these applications or just let them ride out until the applicants withdrew them.
A Maturing Market Brings Hope
One of the many benefits of the crypto downturn from 2018 to 2019 is the maturity it gave the industry. New investors were made to understand that cryptocurrencies aren't just a get-rich-quick scheme, and the market itself developed significantly through an organic process.
With a changing landscape, crypto companies were more confident to make ETF filings. Interestingly, other countries have even taken charge and are now making progress on the ETF front.
One particularly impressive country is Canada. This year alone, the country has seen two Bitcoin ETFs rise. The first Canadian ETF was from Purpose Investments, an investment firm based out of Ontario. The Ontario Securities Commission (OSC) approved the ETF in February, paving the way for the firm to improve investors' exposure to the asset.
The Purpose Bitcoin ETF was a milestone indeed. Bloomberg Law reported that it had a momentous first day, selling almost $100 million in shares in that span. A press release from the developers also expressed sentiment, with Purpose Investments explaining that they believe the product has a bright future.
Days later, the OSC approved another Bitcoin ETF from Evolve Funds Group Inc., an investment advisory firm based in Toronto. All of these underscore the increasing demand that Bitcoin-denominated investment products are having across North America.
Time for ETFs to Shine
Elsewhere, there are signs of progress on ETFs as well. In February, the Australian Financial Review reported that the Australian Securities and Investments Commission (ASIC) had signaled openness to launch a Bitcoin ETF. Cathie Armour, the ASIC's Commissioner, explained that they would be open to approving ETFs if the proper rules are in place. For now, this doesn't seem to be the case.
"For any products to be quoted on exchange markets in Australia, the particular market needs to have in place rules that facilitate the quoting of products [...] Not all markets have rules in place that do that," Armour said in part.
As for the United States, there is also renewed hope that ETFs could get their day in the sun finally. The SEC has undergone a leadership change, with former Commissioner Jay Clayton resigning from his post last year. Many are looking to see if the Biden administration's pick will be more pro-crypto and allow Bitcoin-based ETFs to operate.
This year already, there have been multiple ETF filings in the United States. In January, top investment firm VanEck filed again for an ETF that would track the performances of several top crypto-affiliated companies. Days later, Valkyrie Digital Assets, another asset management firm, confirmed an ETF filing.
Since then, it has been one filing after another. Bitwise Asset Management has launched an ETF filing, as has WisdomTree, SkyBridge Capital, and Fidelity. All of these firms will hope that the Biden administration becomes more accommodating to crypto innovations than the Trump administration. They will also look to capitalize on the current industry bull run to get investors to commit to their products.
ETFs provide yet another reason for the U.S. government to consider crypto regulations. If the hunger for them is sufficient, regulators could get enough of an incentive to fast-track the legislation process and provide greater clarity to the crypto market.