Investments in the crypto space are continuing to ramp up, with the market finally looking to banish the struggles it has faced in the past few months and come out of the doldrums.
Now that things are looking up once more, large financial institutions that focus on crypto are returning to an old issue - exchange-traded funds (ETFs).
ETFs are another concept that the crypto space got from traditional finance. An ETF is a security that tracks a sector, an index, or some other asset. They can be bought and sold on a stock exchange - just like regular stocks. Since ETFs can be structured to track the performance of anything, several companies have been itching to bring them into the crypto space as well.
Ramping Up Applications for ETFs
The battle to launch crypto-based ETFs has been raging for years now. Several companies have tried to launch these products, but the Securities and Exchange Commission (SEC) has continued to deny them all. But, there is renewed hope that the current market condition - as well as the perceived mainstream adoption that crypto has gotten - will change the agency’s mind.
While the current ETF push started months ago, it came to the forefront in August. This month, VanEck - an asset management firm - filed an application with the SEC for a Bitcoin Strategy ETF. In its filing, VanEck explained that the fund will not invest directly. Instead, it will provide exposure through Bitcoin futures contracts, pooled investments, and other exchange-traded offerings.
VanEck pointed out that its ETF will allow exposure using products listed and traded in Canada - through the Evolve Funds Group and Purpose Investments; two companies that successfully launched crypto ETFs in Canada earlier this year. The investment will also be run by a subsidiary of the company based in the Cayman Islands.
Of course, VanEck is one of the companies that started the push towards crypto ETFs in the United States. Besides the Bitcoin Strategy ETF, the company has also applied for an ETF denominated in Bitcoin and another in Ether. But, while those funds will provide exposure to the assets directly, the Bitcoin Strategy ETF won’t.
Besides VanEck, Valkyrie Digital Assets - an alternative financial services firm - has also filed for a BitcoiN ETF. In its prospectus, the company confirmed that its Bitcoin ETF will be purchased via a subsidiary based in the Cayman Islands.
The prospectus added that the fund will initially invest exclusively in Bitcoin contracts that are traded on the Chicago Mercantile Exchange (CME), with the ETF looking to get a total notional value of its underlying futures contracts as close to 100 percent as possible.
Valkyrie has also filed for a spot Bitcoin ETF. The application came in April, following the 1933 Securities Act. The company will now hope to at least get one of those applications approved.
Ether-Based ETFs Moving Forward
There is also the fact that Ether-based ETFs are surging. Two Ether-based ETF applications were filed last week, with VanEck and ProShares looking to get approval soon enough. VanEck is looking to launch an Ethereum Strategy ETF, while ProShares has called its product the Ether Strategy ETF.
Both products aim to offer exposure to Ether by investing in Ether futures contracts as well as pooled investment vehicles and other exchange-traded products with exposure to the second most valuable cryptocurrency. With the SEC dragging its feet with approval, both firms will be hoping to get in on the action.
With VanEck and ProShares, the number of Ether-based ETFs has now risen to a staggering 23.
Could Approval Come In Soon?
The SEC has also noticed the rise in the number of ETF applications, and it appears that approval could be coming soon. In an investor note earlier this week, Bloomberg ETF analysts Eric Balchunas and James Seyffart said that the SEC could approve ETFs this year.
“VanEck and ProShares’ rapid withdrawal of proposals for Ethereum futures ETFs is a good sign for a potential Bitcoin futures ETF, given the SEC has allowed those filing to remain active. A launch could come as soon as October, and we believe the SEC should permit several at once to avoid handing out a first-mover advantage,” both men said.
Balchunas noted that the Bitcoin futures ETF from ProShares is among the proposals with the highest likelihood of getting approved by the SEC. Nothing is set in stone, but there are reasons to be excited.
SEC Commissioner Gary Gensler himself has said that he would be more open to accepting ETF applications based on crypto futures as opposed to those that offer direct exposure to the assets. Gensler’s comments were part of the major catalysts for the current flood of ETF applications.
If approval does come this year, there will be a great deal of activity for the space.