Will the US Get a Crypto ETF Now That Jay Clayton’s Out of Office?

A wave of new Bitcoin & crypto ETF applications have hit the SEC. Will any of them be approved?

In early 2019, Bitcoin ETFs were all the rage, sort of.

At least, applying for the right to launch a Bitcoin ETF in the United States seemed to have been a popular thing to do back in those days. A number of high-profile financial firms filed for the right to launch a Bitcoin ETF, including BitWise Digital Assets and VanEck. However, every single one of the filings was denied.

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After the wave of denials hit, applicants seemed to cool off on their efforts. That is, until recently.

Has the ‘Right Time’ to Apply for Bitcoin ETFs in the United States Finally Arrived?

Indeed, when the SEC rejected Bitwise’s application in October of 2019, the firm said on Twitter that it would not be appealing the decision. Instead, Bitwise said that it would “re-file when the time is right.”

It seems that the ‘right’ time may have come. In February, Bitwise filed for another kind of crypto ETF with the SEC.

This time, the fund–called the ‘Crypto Innovators ETF’ was not Bitcoin-focused. Instead, as CoinTelegraph reported: “the proposed Index will be comprised primarily of companies that derive more than 75% of their revenue from the crypto sector or that have more than 75% of their net assets held in cryptocurrency.”

And, Bitwise has not been the only firm to file for a crypto ETF since the beginning of the year. Earlier this week, Finance Magnates reported that SkyBridge Capital, a New York-based investment firm, filed for a Bitcoin ETF in partnership with First Trust Advisors.

Additionally, WisdomTree submitted its latest application for a Bitcoin ETF on March 11th. (WisdomTree had applied for the right to launch an ETF that would invest up to 5% of its capital into Bitcoin futures contracts in 2020.)

Further, in February, the US investment bank Morgan Stanley submitted a Bitcoin ETF filing in partnership with NYDIG, a financial services firm focused on cryptocurrency. Finally, in late December of 2020 and early January 2021, VanEck and Valkyrie Digital Assets filed for Bitcoin ETFs. VanEck, which has issued a number of exchange-traded products, has been trying for a Bitcoin ETF for several years. Its last Bitcoin ETF application was rejected in September 2019.

“There Is a Huge Possibility for a Bitcoin ETF to Be Approved Now Due to the Influx of Blockchain-Friendly Folks in Both the SEC and CFTC.”

Why have all of these firms submitted crypto ETF applications since the beginning of the year?

It seems that there are several reasons. First of all, when the wave of Bitcoin ETF rejections hit in late 2019, some analysts pointed to the organization’s Chairman.

For example, Jake Chervinsky, a general counsel lawyer at Compound Finance, Tweeted in October 2019 that: “At this point, it’s reasonable to assume that Jay Clayton’s SEC will never approve a bitcoin ETF.” Chervinsky pointed to the fact that: “usually we’d see new ETF proposals filed immediately after rejection,” but many of the rejected firms tabled their ETF efforts until further notice.

Now, Clayton is no longer the Chairman of the SEC. He stepped down from the position in December 2020.

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Marie Tatibouet, the Chief Marketing Officer at cryptocurrency exchange, Gate.io, told Finance Magnates that therefore, new leadership in the SEC and elsewhere could be a boon for crypto-related investment products. “There is a huge possibility for a Bitcoin ETF to be approved now due to the influx of blockchain-friendly folks in both the SEC and CFTC,” Tatibouet told Finance Magnates.

For example, “Gary Gensler, the new SEC chair, was a blockchain researcher and professor.” Indeed, Gensler was formerly the Senior Advisor to the MIT Media Lab’s Digital Currency Initiative.

Moreover, Tatibouet explained that “Chris Brummer, the man heavily touted to be the new CFTC chair, is known for his research work on digital technology, international finance and cryptocurrencies.” Additionally, “Jason Somensatto, a lawyer and former senior legal counsel of the Ethereum-based decentralized exchange protocol, Ox (ZRX), has also joined the U.S. Commodity Futures Trading Commission (CFTC).”

Marie Tatibouet of Gate.io
Marie Tatibouet, Chief Marketing Officer at Gate.io.

“In 2019, It Was Estimated That There Were 31 Million Bitcoin Users. Today, That Number Exceeds 100 Million.”

In addition to the influx of new possibly blockchain-friendly faces in the SEC and CFTC, the cryptocurrency market as a whole looks quite different now than it did in 2019.

“Remember that over the last two years, institutions like MicroStrategy, Tesla and Square Crypto, have made significant Bitcoin investments, which further solidifies its case as a credible asset class,” Tatibouet told Finance Magnates. “All of these factors will definitely improve the case for a Bitcoin ETF.”

Darin Feinstein, Executive Chairman of Black Star Investments, pointed out to Finance Magnates that: “in 2019, it was estimated that there were 31 million Bitcoin users. Today, that number exceeds 100 million.”

“As more people move toward interacting with digital assets, the likelihood of financial derivative products moves from a question of if they are approved to when they will be approved,” he said.

Additionally, “Canada and Brazil have both approved ETFs. It is just a matter of time before the United States joins them.”

And so far, the performance of and interest in ETFs outside of the United States has been considerable. Tatibouet told Finance Magnates that: “Canadian Bitcoin ETF application, as brought forward by Purpose Investments, has already accomplished $1 billion in total assets under management.” As such, “they have already proven that a Bitcoin ETF can successfully operate in North America.”

Bumps on the Road to Approval

In other words, many analysts believe that a Bitcoin ETF is no longer a matter of if, but when.

Pat LaVecchia, CEO and Co-Chairman of Oasis Pro Markets, told Finance Magnates that: “the likelihood of the SEC approving a Bitcoin ETF has certainly improved, although I expect the SEC to be very deliberate in examining the issue before making a decision.”

Pat Lavechhia, CEO and Co-Chairman of Oasis Pro Markets.

“As more mainstream retailers and financial institutions accept Bitcoin as payment for goods and services, an ETF will ultimately be approved,” LaVecchia said. “However, the SEC will be very selective in approving a fund, as they will consider experience with managing other ETFs, capitalization and sophistication of each applicant.”

Indeed, in spite of the progress that has been made, there may still be some bumps on the road to an approval.

Kristin Boggiano, President and Co-Founder of digital assets capital markets firm, CrossTower, told Finance Magnates that while “there is hope the new administration and the new chairman of the SEC will make different decisions than have been made in the past,” there are no guarantees.

“The SEC Has Applied a Different Standard to Bitcoin ETFs Compared with Other Asset Classes.”

Kristin Boggiano, President and Co-Founder of CrossTower.

“People submitting ETFs for approval have clarity as to whether an ETF will be approved,” Boggiano told Finance Magnates. “As Commissioner Peirce consistently notes, the SEC has applied a different standard to bitcoin ETFs compared with other asset classes, and therefore, no approval has been made despite significant and increasing demand.”

Additionally, as the United States SEC has continually stalled in approving an ETF, investors have sought other regulated means of investing in Bitcoin and other cryptocurrencies.

Boggiano said that: “Meanwhile, investors looking for crypto exposure have invested in other security products, such as the recent convertible bond issuance, in order to gain exposure to this asset class.”

At the same time, “the SEC’s reluctance to approve ETFs has magnified the first-approved [‘first mover’] advantage in the bitcoin ETF, which is likely why entities are submitting ETFs for approval.”

An Approved Crypto ETF “Would Be Extremely Positive for the Overall Digital Asset Industry and the Bitcoin Market.”

And indeed, as demand for regulated Bitcoin investment products has increased, it has become increasingly clear to some analysts that the impact of an approved Bitcoin ETF on US markets would be significant.

How significant? Pat LaVecchia said that: “It’s difficult to gauge the impact on the price of Bitcoin. Remember, the ETF tracks the price of the asset, it doesn’t actually own Bitcoin.”

“That being said, the flows into the ETF will certainly indicate the level of interest in BItcoin as an investment. Just as a point of reference, The Purpose Bitcoin ETF, which only started trading last month in Canada, already has a market cap of $1 billion. So there is clearly demand for this product.”

Indeed, Kapil Rathi, chief executive of CrossTower, told Finance Magnates that an approved crypto ETF “would be extremely positive for the overall digital asset industry and the bitcoin market.”

“If the SEC does so, it would permit the average investor a means to obtain exposure in their IRAs and 401ks,” he said. “Most investors in bitcoin believe in the asset class as a long-term investment, which indicates that you will see a significant amount of retirement inflows into bitcoin. According to Bloomberg, new bitcoin ETFs in Canada attracted $5.2 billion in February alone, the second-highest month of inflows on record. I think you’ll see the same in the US.”

What are your thoughts on the potential launch of a Bitcoin ETF in the united states? Let us know in the comments below. 

Kapil Rathi, chief executive of CrossTower.
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