Launched on February 18th, Purpose Investments ETF became the first available Bitcoin-focused ETF in North America. Close on its heels, Evolve’s ETF released the following day. Investors showed interest in both, with Purpose Investments seeing $165 million in their first day of trading. Exchange traded funds represent a major new vector for cryptocurrency engagement – allowing the average investor to get involved without the usual technological hurdles. Yet, ETF approval remains elusive in many countries. Notoriously slow to react government agencies have yet to approve such a fund in the United States.
Despite that, initial success of the Canadian ETFs could spur a reaction in the US. Like the late 2017 Cryptocurrency Boom, success throughout the industry has drawn public interest. Investing directly in cryptocurrencies, while easier, remains a difficult task. Inserting ETFs into traditional markets makes them considerably more palatable for a general audience.
How are Bitcoin ETFs Different from Current Options?
Exchange traded funds offer the most directly-correlated means of investing in an asset. Other options do exist, even in the United States, but their management makes them less directly equivalent. Grayscale Investments’ GBTC fund being the most popular, it none-the-less differs substantially from the two new ETFs. Due to the difficulty of creating new shares, GBTC’s value often differs considerably from BTC itself.
In contrast, ETFs can quickly issue new shares and allows for a more direct ownership from investors. This is much more palatable for large-scale players, who would have less difficulty recouping losses when compared against a vehicle like GBTC. As an ETF’s shares are related to the held asset, they can be redeemed for equivalent value. An ETN – like GBTC – could collapse at a differing price and make that difficult or impossible.
Struggle for Approval
Despite a byzantine governance system and failure to address the emerging cryptocurrency industry, the United States remains a major market. Many of the larger players in the US cryptocurrency market have attempted to gain approval for Bitcoin ETFs – but all, to this date, have failed. In part, this is due to a lack of confidence within the SEC regarding the cryptocurrency industry’s resistance to manipulation and volatility.
Yet, given the stock market’s recent performance and decoupling from the economy at large, this argument fails to hold water. The SEC does appear to be softening to cryptocurrency – or at least admitting that it is here to stay – and a new administration may lead to fresh ideas and possible ETF approval.
Article By: Adam Stone