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Aug. 5, 2021, 2:33 p.m. EDT

SEC’s Gary Gensler may have just laid out the clearest road map to the first U.S. bitcoin ETF

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By Mark DeCambre

Hello there! Welcome back. We’ve been thinking about the Gary Gensler , chairman of the U.S. Securities and Exchange Commission and what he’s said about the prospects for a bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.50% ETF in recent days.

We chatted with ETF industry pioneer  Dave Nadig , chief investment officer and director of research of  ETF Trends  and ETF Database (which was recently bought by index provider Alerian ), who thinks that Gensler has laid the ground work for a bitcoin exchange-traded fund to hit the market soon, possibly before the end of 2021.

But before we get into that, it is worth noting that last week’s edition pointed to the possibility that Cathie Wood’ s Ark Investment Management could be one of the first funds to invest in Robinhood Markets Inc. /zigman2/quotes/228268942/composite HOOD -2.31% . Indeed, the Ark Innovation ETF /zigman2/quotes/204808965/composite ARKK -4.65% , the flagship fund of Ark Investment, purchased nearly 1.3 million shares of Robinhood during its first day of trade, worth roughly $45 million. Even if it was a relatively easy call, you read it here first.

On top of that, we’ve been noting why ETF inflows have been drawing heavy appetite.

Sign up here  for ETF Wrap. As always, please, send tips, or feedback, and find me on Twitter at @mdecambre to tell me what we need to be jumping on. 

Road to a bitcoin ETF

During an interview with CNBC this week, Gensler said that he would anticipate that his staff will “review potentially some ETF filings around investing in bitcoin futures on the Chicago Mercantile Exchange under what we call in our craft the 1940 Act.”

The 1940 Investment Company Act regulates mutual funds and closed-end funds, and is intended to provide significant investor protections, one of Gensler’s central pursuits in regulating crypto like bitcoin, as well as Ether /zigman2/quotes/108573964/realtime ETHUSD +0.81% on the Ethereum blockchain and more speculative, meme assets like dogecoin /zigman2/quotes/226077044/realtime DOGEUSD +5.30% .

Gensler’s comments come after ProFunds, a mutual fund management company that looks after some $60 billion,  announced  the first mutual fund in the U.S. that offers bitcoin exposure, Bitcoin Strategy ProFund , via futures /zigman2/quotes/211755589/delayed BTC.1 +0.81% .

Nadig thinks that this new fund and Gensler’s remarks make for more profound developments than the industry may be expecting, paving the way for a bitcoin ETF.

“I suspect that if there isn’t already today, that there will be a USO for bitcoin,” coming soon, referring to the oil-futures pegged ETF that became popular among individual investors near the onset of COVID pandemic in April of 2020. (USO also saw some rough times during that period too, which ultimately led to a letter from its regulator .)

Nadig says that Gensler may view bitcoin futures as an area of the market that offers better protection for average investors seeking exposure to crypto than those fund providers aiming to offer physical bitcoin, custodied in wallets or other digital storage platforms.

CME Group Inc . /zigman2/quotes/210449693/composite CME +0.16% , the world’s largest futures exchange, began trading its bitcoin futures contract in late December of 2017 . As the former chairman of the Commodity Futures Trading Commission from 2009 to 2014, Gensler may also feel more comfortable with futures as the underpinning for an ETF. The CME kicked off a mini bitcoin futures contract this spring.

“I’d be shocked if we don’t have a futures-based [ETF] product by year-end,” Nadig speculated.

The fund pro also noted that if this isn’t the most apparent clue being offered by the SEC then he expects that the regulator may eventually deliver more explicit guidance on how to construct a bitcoin or crypto ETF.

Check out : The brewing turf war in crypto regulation shows Congress must step in, experts say

More than a dozen bitcoin ETF applications have been submitted and none have been approved of late. Gensler did appear to reference Grayscale Bitcoin Trust /zigman2/quotes/203330852/delayed GBTC -3.80% , which he represented as a product that offers bitcoin exposure even if it doesn’t yet carry a tax-efficient ETF wrapper.

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