Mark DeCambre and Andrea Riquier
Bitcoin prices are on the rise, notwithstanding a recent bout of weakness , but experts interviewed by MarketWatch caution that although it may feel inevitable, an exchange-traded fund backed by a digital-currency may not be seen as quickly as enthusiasts might hope.
“The SEC appears to have a very high bar to clear, tied to market manipulation and custody audit,” Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research told MarketWatch in emailed comments on Friday.
Fresh talk of an ETF backed by a digital asset like bitcoin or an alternative comes amid a surge in institutional interest in the value of the overall complex of virtual assets. The value of digital currencies hit a record at $1 trillion earlier this month as bitcoin prices /zigman2/quotes/31322028/realtime BTCUSD +0.03% surged to an all-time high at $41,958, according to CoinDesk.
Speculation around the prospects for an investment fund that would be more accessible to individual investors also comes as Wall Street’s top cop, the Securities and Exchange Commission, is set to be headed by a veritable bitcoin expert: Gary Gensler, a former head of the Commodity Futures Trading Commission and a professor of cryptocurrencies at Massachusetts Institute of Technology.
President-elect Joe Biden on Monday tapped Gensler to serve as SEC chairman . With his knowledge of cryptos, Gensler would pair well with Hester Peirce, an SEC commissioner who has become a vocal advocate for digital assets and who is affectionately referred to as “crypto mom” by bitcoin bulls.
However, hope that Gensler and Peirce might fast-track a much-hoped-for bitcoin fund with an ETF wrapper may be a bit premature, at least in the near term, experts said.
“As the infrastructure around [bitcoin] grows, we expect an ETF to come to market eventually, but it is unclear when and we are skeptical it will be in 2021,” Rosenbluth told MarketWatch.
Since 2013, a bitcoin ETF has been a virtual Holy Grail for fans of digital assets, with the aim of providing individual investors easier access to bitcoins at a low cost and in ETF wrapper.
To be sure, an ETF sponsored by Van Eck Securities Corp. and SolidX Management offers qualified investors, mostly hedge funds and wealthy investors, access to a bitcoin-backed trust, but that offering failed to meet hopes for a fund that delivered cryptos to the masses.
Jan van Eck, chief executive of a family firm founded several decades ago bearing his name, told MarketWatch in an interview earlier this week that he’s still intent on making a bitcoin ETF a reality, despite past rejection by the SEC.
“We’re going to keep trying,” he said. “The way the regulations work is you file, you have conversations with the SEC and if it looks like you’re not going to get approved, you pull your application,” he said.
Rosenbluth estimates that about seven firms over the years have tried and failed to get clearance for a digital-currency ETF — including Gemini, founded in 2014 by Tyler and Cameron Winklevoss.
Much has changed for bitcoin and its ilk over the years, with a wave of institutional investor interest in the sector helping to foster a fresh rally in coins and renewed hope for products that offer a wider array of investors access.
However, lingering questions about infrastructure in a market that didn’t exist until 2009 (and arguably not until years after the first bitcoins were digital minted) have given regulators reason to slow play a crypto ETF.
“In general, the SEC is concerned about market manipulation. They’re concerned about custody. And then I think they’re just concerned about the maturity of the market,” van Eck said.
Amy Lynch, a former SEC examiner and president and founder at consultant FrontLine Compliance, said that the question of how to value bitcoins and other cryptos may be the biggest issue for regulators.
It trades “purely on speculation as opposed to a real value denominator,” Lynch said.