The US issuer of exchange traded funds (ETF) Invesco has for the first time revealed the reasons for its surprising decision to withdraw from the race to launch Bitcoin (BTC) -backed futures ETFs – and like its competitor Bitwise Asset Management, the company blamed the regulations of the US Securities and Exchange Commission.
Issues in the SEC rules for ETFs identified by Invesco
According to Invesco, the main issue is the SEC’s requirement that an ETF only hold Bitcoin futures contracts that are traded on the Chicago Mercantile Exchange (CME). Futures contracts must be rotated every month after they expire, which makes ETF management more complex and expensive.
“We ran some simulations and the rotation cost of the futures and created a resistance between 60-80 basis points per month.” Anna Paglia, Global Head of ETFs and Indexed Strategys at Invesco, told the Financial Times in a comment on Monday.
“We’re talking about some big numbers, 5-10% annually. It wouldn’t be a simple copy of the Bitcoin index without significant tracking errors, Paglia added., added Paglia, sharing concerns about the capacity and liquidity of the bitcoin futures market.
Invesco had originally planned to include a combination of bitcoin futures and swaps, physical bitcoin, ETFs, and private funds that invest in the industry as part of the ETF, but the SEC said the SEC would not allow regulation.
And while Paglia told the Financial Times that CME’s bitcoin futures can be a “performance factor” in a fund, she also added that they “never thought they would be so effective when it comes to space to occupy”. .
In addition to the costs associated with launching contracts at expiration, however, CME rules that limit the number of previous month’s contracts that can be held by a company such as an ETF also create problems for investors.
Invesco blames SEC for Bitwise-like ETF decision
The rule forced the first Bitcoin ETF, ProShares’ BITO, to upload November contracts to investors even more shortly after it was launched in October.
“The more we examined the market and space, the more we realized that there are better ways to provide this particular exposure.”, Invesco’s ETF boss spoke about his decision to withdraw his 75-page ETF filing.
The implicit criticism of Invesco’s rules echoes what was also heard from Bitwise after it was said last week that it was withdrawing its Bitcoin futures ETF application.
Bitwise chief investment officer Matt Hougan said the company’s proposal for a futures-based ETF has been withdrawn due to the “more complex” and higher-than-expected costs associated with an ETF like this one.
As a result, Hougan said long-term Bitcoin investors “would be better off with immediate engagement,” which he noted is already available. Instead, Bitwise will “find other ways to help investors access the incredible opportunities in cryptocurrencies,” Hougan concluded at the time.
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