- BlackRock, Fidelity, and others filed for spot Bitcoin ETF approvals in June.
- BlackRock has only had one ETF rejected against 575 approvals from the SEC.
- The SEC has pushed back on recent spot BTC ETF applications, calling them “inadequate.”
Exchange-traded funds (ETFs) reshaped the investment landscape when they hit the scene in the early 90s. Low fees and greater liquidity quickly made these investment tools a popular choice. Today, you can buy ETFs in nearly any sector, from stocks to real estate, to gold, and now Bitcoin as well.
But current Bitcoin ETF options bring some limitations, namely that they don’t own any actual Bitcoin. However, that could change quickly as traditional finance heavy hitters like BlackRock and Fidelity leap into the fray with a flurry of SEC filings for new Bitcoin-backed ETFs.
Several spot Bitcoin ETFs may be on the horizon, easily tradable funds that hold real Bitcoin rather than derivatives.
What Is A Bitcoin ETF?
A Bitcoin ETF is an exchange-traded fund that holds Bitcoin, similar to ETFs that hold gold, stocks, or bonds.
There’s just one trouble. A true Bitcoin ETF doesn’t exist yet, at least not in the US (Canada has one). Today’s Bitcoin ETF options in the US use the futures market to provide returns (or losses) to investors. In other words, they hold futures contracts (derivatives) rather than actual Bitcoin.
In June, both BlackRock and Fidelity filed for approval of spot Bitcoin ETFs backed by real on-the-blockchain BTC. Combined, these two companies manage nearly $15 trillion in assets combined.
The SEC Response To Recent Bitcoin ETF Applications
A June 30th report in the Wall Street Journal indicates that recent BTC ETF filings have been deemed “inadequate” by the SEC. The filing from BlackRock and ARK Invest’s amended filing both promise a surveillance-sharing agreement. However, they don’t name the spot Bitcoin exchange that will provide this service. The SEC also wants additional details on the surveillance-sharing agreements.
A surveillance-sharing agreement ensures that the fund — through a third-party Bitcoin exchange — will monitor trading and clearing activity as well as customer information, perhaps allaying SEC concerns about market manipulation. But the SEC needs more details before the pending applications can move forward.
The firms can file amended applications, as some have several times already.
Pending Bitcoin ETFs (Spot Market)
BlackRock is a juggernaut in the financial world, with over $9 trillion in assets under management and control of roughly a third of the ETF market. On June 13, 2023, BlackRock filed for approval of a spot Bitcoin ETF with the SEC.
The company isn’t the only firm to file recently, but it’s the most prominent and, some speculate, the most likely to gain a first-ever approval from an SEC that has rejected every application for a spot Bitcoin ETF to date.
Of note, Blackrock has had only one rejected ETF application versus 575 approved.
Here are some recent filings for a spot Bitcoin ETF:
|ARK Invest||04/25/2023 (amended 06/28/2023)||ARK 21Shares Bitcoin ETF||$14 billion|
|BlackRock||06/15/2023||iShares Bitcoin Trust||$10 trillion|
|Bitwise||06/15/2023||Bitwise Bitcoin ETP Trust||$1 billion|
|WisdomTree||06/20/2023||WisdomTree Bitcoin Trust||$93 billion|
|Invesco||06/20/2023||Invesco Galaxy Bitcoin ETF||$1.5 trillion|
|Valkyrie||06/21/2023||Valkyrie Bitcoin Fund||$1 billion|
|Fidelity||06/29/2023||Wise Origin Bitcoin Trust||$4.5 trillion|
Cathie Wood’s ARK Invest, known for investing in disruptive industries, filed a revised application for a spot Bitcoin ETF on June 28, 2023. The original application was filed on 04/25/2023, putting ARK first in line among the recent BTC ETF applicants. ARK Invest has $14 million in assets under management, including 11.44 million shares of Coinbase (NASDAQ: COIN).
When BlackRock files for an ETF, it’s almost always a surety to be approved. This time, BlackRock swung for the fences with a filing for a spot BTC ETF on June 15, 2023. BlackRock did its research before filing, possibly overcoming the one remaining stumbling block that stymied applications from other companies. BlackRock included a surveillance-sharing agreement in its application, a safeguard (in partnership with a third-party BTC spot provider) to help prevent market manipulation.
Bitwise, the largest crypto index manager in the world, joined a growing list of applicants filing for its BTC ETF on the same day as BlackRock. The firm currently offers four publicly traded funds and ten private funds, all centered around crypto and blockchain investments.
With $93 billion in assets under management, WisdomTree offers a wide assortment of investment funds ranging from AI to dividend funds, and now the global firm is making its Bitcoin move. WisdomTree filed for its WisdomTree Bitcoin Trust on June 20, 2023.
As the third largest firm among recent BTC ETF filers, Invesco boasts $1.5 trillion in assets under management. The company is best known for QQQ, the index ETF that tracks the Nasdaq-100. With more than 225 ETFs among its offerings, Invesco looks well positioned to take on a spot BTC ETF. The firm filed for approval of the Invesco Galaxy Bitcoin ETF on June 20, 2023.
With a focus on digital assets, including a Bitcoin futures ETF and a Bitcoin miners ETF, Valkyrie is well-versed in the crypto space. The $1 billion financial services firm applied for a spot Bitcoin ETF for its Valkyrie Bitcoin Fund on June 21. 2023.
Long rumored to be eyeing Grayscale as an acquisition, Fidelity put an end to speculation on June 29, 2023, by filing an application for its Bitcoin ETF called Wise Origin Bitcoin Trust. Fidelity has previously applied for approval of a BTC ETF, but its application was denied in 2022. The investment firm manages $4.5 trillion in assets, including nearly 60 exchange-traded funds.
Other Spot ETF Hopefuls
Grayscale, well known in the crypto community — and infamous for the recent bankruptcy of subsidiary Genesis’ lending unit — has repeatedly tried to get approval to convert the Grayscale Bitcoin Trust to an ETF. The SEC has rejected the bid, along with bids from 20 other companies seeking a Bitcoin ETF approval.
But this time could be different for one or more ETF hopefuls, with companies like BlackRock spearheading the latest push forward.
ETF Approval Timelines
The SEC has 45 days to approve, reject, or extend an ETF application, with a maximum of 240 days before it must make a decision. Of the current contenders, ARK Invest is first in line based on application date and recently amended its application to mirror the surveillance-sharing agreement that set the BlackRock application apart from those that came before.
What Types Of Bitcoin ETFs Are Available?
The Bitcoin ETFs currently available in the US utilize Bitcoin futures contracts at the Chicago Mercantile Exchange. In other words, the existing ETFs are backed by Bitcoin derivatives — gambles on the future price — rather than Bitcoin itself. Still, these established derivatives market provides additional ways to speculate on the future price of BTC.
- Bitcoin Futures ETF: These are basic futures Bitcoin ETFs trading with no leverage.
- Bitcoin Short ETF: Futures trading brings the ability to bet on a decline in the price of Bitcoin, and Bitcoin Short ETFs provide an easy way to do so.
- Bitcoin Leveraged Futures ETF: If you want to double your gains (or potentially your losses), you can choose a Bitcoin ETF with 2X leverage.
- Bitcoin Spot ETF (not yet available): Spot ETFs are the standout for two reasons, with the primary one being that the fund would hold actual Bitcoin to back its shares. The other distinction is that none exist yet (but they may be coming).
Reasons To Consider A Bitcoin ETF
ETFs bring several potential advantages for those interested in investing in Bitcoin.
- Easy investments: Buying spot Bitcoin through a crypto exchange like Coinbase requires some work. You have to learn about crypto exchanges and perhaps crypto wallets and self-custody. ETFs solve this problem for people who just want exposure to Bitcoin as an asset. The ETF handles custody and buys or sells BTC to back the shares in the ETF. You just buy or sell ETF shares through your brokerage account.
- Easy tax accounting: Crypto taxes can be notoriously difficult, although the issue is lessened if you only hold Bitcoin. Regardless, Bitcoin ETF gains or losses are treated like any other ETF for tax purposes and are easily handled by popular tax software like TurboTax.
- Easy DCA: In theory, dollar-cost averaging (DCA) in Bitcoin through an ETF becomes as easy as DCA in any other brokerage security. Set it and forget it.
- Lower investment fees: Crypto exchange fees vary from ridiculously cheap to ridiculously expensive, but the lower fees often involve using an advanced interface. A Bitcoin ETF may have lower fees compared to the “simple” buying interface found on exchanges like Coinbase. However, ETF fees are ongoing rather than occurring only at purchase and sale.
- Institutional access: To date, regulatory and custody issues have prevented institutions from investing in Bitcoin in a meaningful way. ETFs could change that, with the buying demand from institutions proving beneficial for retail investors in Bitcoin ETFs as well as spot Bitcoin buyers.
To Sum It Up
Bitcoin ETFs are already here, but the current options use the futures markets to approximate Bitcoin market moves. Spot ETFs promise to track the BTC market closely, giving investors easy access to the BTC market without jumping through hoops on exchanges. Spot Bitcoin ETFs may also attract institutional investors, businesses, and funds looking for a return or store of value. When the big money comes and demand increases, this could also mean upside moves for the price of Bitcoin.
Frequently Asked Questions
The current SEC-approved Bitcoin ETFs utilize Bitcoin futures contracts. These ETFs don’t own Bitcoin; instead, they buy and sell Bitcoin futures contracts. A new wave of applicants for spot Bitcoin ETFs hit the wires in June 2023. If approved, these spot ETFs would own Bitcoin.
No. You can buy or sell shares of an ETF, but the fund owns the Bitcoin (or Bitcoin futures contracts) and you can’t withdraw Bitcoin from a Bitcoin ETF.
Not yet. To date, all the approved Bitcoin ETFs in the US use futures contracts to track Bitcoin market moves. A number of new applicants in June 2023, including BlackRock and Fidelity, hope to bring spot Bitcoin ETFs to the market. A spot Bitcoin ETF buys and sells actual Bitcoin as opposed to futures contracts.
Look for funds with low expense ratios but healthy liquidity. Smaller funds can be more difficult to exit at an ideal price due to lower trading volume. Also, weigh your investment goals against the fund’s focus and performance. Some of today’s existing Bitcoin ETFs, which utilize futures contracts, see variances in comparison to the price movements of spot Bitcoin.
If you believe in Bitcoin in the long term, a Bitcoin ETF offers an easy way to gain exposure to the asset. Until and unless Bitcoin reaches wide adoption, Bitcoin remains a speculative asset with a core community of true believers.