The Bitcoin rally that rode in on the back of investment titan BlackRock’s application for an exchange traded fund for spot markets is still going. Now, with the launch of the first ETF in Bitcoin leveraged futures, hopes are rising that a spot ETF will be next.
For many investors, BlackRock’s success could herald a new stage of institutional investors getting involved with Bitcoin, especially if it cracks open the door for other filers to follow it through.
In an interview with Decrypt, Justin Young, Volatility Shares’ co-founder and president, said that investors looking to get exposure to Bitcoin are looking for the “easiest and most regulated way” to invest in it. For this reason, he said the spot ETF may be the most effective way to do that.
“In terms of ETF issuers putting in these applications,” Young told Decrypt. “It’s like the creme de la creme for investors.”
Since BlackRock filed for a spot ETF on June 15, Bitcoin’s price has reached its highest levels in over a year. Its application was followed by others, like Fidelity, Valkyrie, and Invesco among others. Though the hype is strong, it runs up against a Securities and Exchange Commission that has capsized previous ETF applicants looking to get involved in Bitcoin spot markets, because of concerns around risks there.
But that is not to say the SEC is totally against any ETFs touching Bitcoin. On June 23, the agency granted it’s regulatory blessing to Volatility Shares, the the first Bitcoin ETF dealing with leveraged futures to get permission to operate. It joins a number of ETFs to do business with Bitcoin futures, something that can contribute to an approval on the spot side, said Young.
Young said that he is not sure if his ETF’s approval paves the way for one in the Bitcoin spot market, but he suggests it did raise hopes that the possibility of one getting approval is around the corner.
“I think it brings to a lot of people’s attention the thought that if the SEC has led a leveraged Bitcoin linked product through, why on Earth wouldn’t they allow spot Bitcoin through?” Young told Decrypt.
An ETF bundles securities like stocks and commodities. Investors can buy shares of an ETF to gain exposure to those securities without owning them directly. In the case of Bitcoin ETFs, there have been two main types: Bitcoin futures and Bitcoin spot.
Since 2013 when the Winklevoss twins first filed for a Bitcoin ETF, the SEC has blocked every application for trades in the spot market. In its refusals, the SEC has said that the applicants failed to show how they’d protect investors from risks around fraud or market manipulation.
Young, however, says that the concerns the SEC raises are “very warranted,” but added that a spot ETF would go a long way in addressing them.
For one, he said an ETF operating in the spot market with regulators’ blessing should be seen as a safer bet. It’s no secret that the SEC has issues with many of the largest crypto exchanges, going so far as to allege several are trading in unregistered entities.
“There’s obviously been a lot of press around the downside of some of these crypto exchanges and the legality of some of them that currently exists,” said Young. “So by bringing Bitcoin in an ETF format, you solve for a lot of those issues”
The other reason, said Young, is that an ETF may go some way in bringing more stability to Bitcoin markets. The shaky legal status around Bitcoin and other cryptocurrencies contributes to how volatile their prices can be, a volatility that the SEC has flagged as worrisome in the path in notices to would-be investors.
However, Young contends that approving a regulated spot ETF in Bitcoin could go some way in “dampening” the volatility, and bring in more investors, who are keen to get involved with more transparent financial products.
“I think the biggest advantage to having that spot ETF and market is that you create more stability and less of that volatility that the SEC doesn’t like,” Young said.