What stood in the way of a pure Bitcoin ETF?

With regulators rumored to be accepting pure Bitcoin (BTC) -based exchange-traded funds soon, it’s important to understand the journey of some of the first crypto-based ETFs recently approved by government agencies.

The US Securities and Exchange Commission has approved a Bitcoin-related ETF that allows investors to get exposure to Bitcoin through the stock market and which was most recently acquired by ProShares Bitcoin Strategy. ETF starts trading on NYSE Arca in October. . 19th

It is important to note that the exchange traded funds mentioned above are not pure crypto ETFs and only track company stocks or crypto-related futures.

The SEC has yet to approve a crypto-only ETF, unlike Canada back in the spring when regulators approved three ether-based ETFs (ETHs) from three different companies: Purpose Investments, Evolve ETF, and CI Global Asset Management.

While there is good news that regulators are starting to accept crypto ETFs, there are still many questions about why there are so many listing challenges. There has been a lot of speculation and speculation this fall about what exactly ETFs are and how they could boost or hinder the entire crypto market. Here are the problems, challenges, and the possible future of crypto-backed exchange-traded funds.

Regulations are not suitable

Exchange traded funds are generally mutual funds that track a basket of assets on the stock exchange and trade in a manner similar to common stocks.

Although there are ETFs for every asset, the problem with cryptocurrencies is that regulators are still unsure of how to define Bitcoin and other cryptocurrencies and how to protect people. These issues can be challenging as pure crypto ETFs appear on the exchange as the lack of clear regulation can cause regulatory problems in different countries and around the world.

For example, different U.S. financial regulators have different – sometimes conflicting – views on what cryptocurrencies are, especially when it comes to taxes and transactions.

In 2020, France’s main financial regulator, the Autorite des Marches Financiers (AMF), responded to the European Commission’s guidelines on so-called “crypto assets”, saying it was too early to define them clearly. A spokesman told Cointelegraph at the time:

“AMF believes that at this point it may be premature to give an accurate classification that applies to crypto assets. Only after a solid answer can we assess the relevance of a precise taxonomy (e.g. “Utility Token”, “Security Token”, “Token Token” Payment “,” Stablecoin “etc.). “

French fund manager Melanion recently approved an ETF alongside Bitcoin in the hopes that its stocks will follow the price of Bitcoin, first in the French market and soon in many other markets across Europe.

Cointelegraph reached out to Jad Comair, founder and chief information officer of Melanion. of ETFs listed in Europe ”- the company must be smart and“ create a globally unique method of indexing to measure the exposure of companies to Bitcoin ”.

This means that the ETF tracks the stocks of companies that invest in Bitcoin, mine Bitcoin, or are linked to the cryptocurrency market, but do not contain Bitcoin itself. “The index selects the companies with the highest exposure to Bitcoin and weights them against their historical (beta) correlation with the performance of Bitcoin,” said Comair.

Fear of risk?

There can still be risks associated with highly volatile assets like cryptocurrencies, especially with a backed Bitcoin futures ETF.

Bitcoin futures ETFs track a basket of futures contracts, not Bitcoin itself. Since Bitcoin’s futures price can differ from the spot price, it is likely that the ETF will not accurately track Bitcoin price, which puts ETF holders at risk are exposed.

The term “contango” refers to when the forward price is higher than the spot price, while “backward” means that the forward price is lower than the spot price.

Related: Cryptocurrency Breaks Wall Street ETF Barrier: A Tipping Point Or A Stop?

Additionally, this high volatility means that regulators may take more investor protection measures, especially after seeing the leaps and bounds the crypto market has made over the past six months. This begs the question:

Can an exchange traded fund help reduce volatility risk?

With the launch and launch of a crypto futures ETF – the most recent of which is currently trading on the New York Stock Exchange – this could “open the door to ‘real’ money. It is very complex to qualify products for small investment pockets, and Bitcoin itself is very complex to include in a regular portfolio, ”said Comair. Increased market exposure, even from companies investing in Bitcoin, could propel the market into a boom and / or stable state.

It is possible that changes in the crypto market could lead to greater adoption of ETFs as the stock market learns to interact with the crypto market – and vice versa. With ETFs tracking companies investing in crypto and the advent of crypto ETFs based on futures, this could lead to wider adoption of crypto investing in general.