Bitcoin ETF’s had been a heated topic of discussion for a long time now. Despite multiple filings, it looks like the same issues have persisted and the regulators have not budged on these issues. Concerns about market manipulation and illicit activities have seen attempts to be addressed, but not to a high enough standard.
The battle for getting a Bitcoin ETF out of the SEC has been raging since 2017 with Winklevoss Twin’s filing. The ETF was then carried on by Bitwise Asset Management, the crypto index fund provider. However, constant rejections from the regulators saw the hype and excitement about an ETF have slowly died down in the past year or so.
However, one investment firm wants to continue testing the SEC’s limits. On June 16, asset manager and ETF specialist WisdomTree filed an N-1A form registration statement with the agency for a Bitcoin ETF that would invest just 5% of its portfolio in cash-settled Bitcoin futures contracts offered by the CME.
The SEC has previously rejected an ETF application with only a 25% BTC component, but 5% is something the SEC might scarcely care about. WisdomTree previously wanted to apply for a regulated stablecoin with the SEC back in January. However, it is now on the same track, but with a BTC component involved.
According to Derek Acree, a co-founder and legal counsel at DeFi Money Market:
“This is not a new tactic but, instead, a calculated plan to explore exactly what the regulators’ thresholds are.”
Eric Ervin, president and CEO of Blockforce Capital noted that Blockforce had filed for a “similar concept” last year with an application for Reality Shares ETF Trust, an exchange-traded fund proposing to invest in a portfolio including both sovereign debt instruments and 25% of the total assets consisted of Bitcoin futures.
However, the firm pulled its application on SEC advice. Ervin added:
“Bitcoin deserves a place in a diversified portfolio, and if the SEC continues to block this, they are essentially encouraging investors to seek that exposure through other, potentially less-regulated means.”
Wilshire Phoenix takes a different approach
On the other hand, Wilshire Phoenix has applied for a grantor trust, rather than an ETF. The asset management firm saw its Bitcoin ETF application being rejected by the SEC earlier this year and is now taking an alternate route.
Like an ETF, a grantor trust allows a publicly traded Bitcoin fund that is in line with the Securities Act of 1933 and the Securities Exchange Act of 1934. Grayscale investments have already received approval for a trust of this sort.
However, the downside to a grantor trust is that it is traded over the counter and not on major exchanges like the NYSE. This makes the trust inaccessible to most retail investors as they do not have access to OTC markets.
An ETF, on the other hand, attracts a wide range of investors both retail and institutional and is much more liquid than a grantor trust.
A recent survey conducted by Bitwise Asset Management about the attitude of financial advisors towards crypto assets found that advisors “overwhelmingly [65%] would prefer to buy crypto in an ETF package compared with all other options.”
While there is a good chance for Wilshire’s trust to receive the SEC’s approval, WisdomTree’s application would shed more light on whether a crypto ETF is actually possible. Only time will tell whether ETF rejectees would now walk the trust route as well.