Bitcoin

Bitwise Asset Management Apply for Bitcoin ETF with the SEC

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An American company called Bitwise Asset Management has applied to the SEC for another shot at getting a Bitcoin ETF (Exchange Traded Fund) passed.

Bitwise are trying to address concerns that the SEC had which made them reject various previous attempts. This new application differs from the last offerings as it aims to price the asset from more exchanges, aggregating the price. Also, this ETF is said to need “regulated third-party custodians to hold its physical bitcoin.” This is also a good step as if the investment is held in custody accounts it will be seen as safer. This would mean the assets held would not be correlated to the fund itself and if the fund ever went bankrupt the Bitcoins would be safe.

Bitwise global head of Exchange-Traded Funds John Hyland stated “We believe the crypto trading ecosystem has evolved in significant ways in the past year … Having a regulated bank or trust company hold physical assets of a fund have been the standard under U.S. fund regulation for the last 80 years, and we believe that is now possible with bitcoin.” Hyland then added, “we are optimistic that 2019 should be the year that a bitcoin ETF launches.” some analysts are sceptical to if this would be enough to get the ETF passed.

The latest application by the company outlines that the proposed ETF will follow the Bitwise Bitcoin Total Return Index measuring the value of bitcoin, plus any “meaningful hard forks.” The track is said to be “calculated based on the prices of bitcoin that the Index Provider derives from bitcoin price transactions occurring on cryptocurrency exchanges.”

The head of global research at Bitwise Matt Hougan said the company spent the last year looking at all the concerns the SEC had regarding any other proposed Bitcoin ETF. Interestingly, if the ETF gets approval through NYSE Arca, it will feature its shares under a ticker symbol. NYSE Arca is the exchange in America which focuses on trading stocks and options.

What could all this mean?

If the ETF is passed thought it could have massive implications through the price of Bitcoin on the various exchanges its traded in. ETF’s are group of securities are effectively collected in a basket with the amount of each security in the fund weighted by size to precisely replicate a particular index. So this would mean if the volume is high the transactions would be sent through multiple exchanges, not just the one. This makes the investment in the ETF much safer as if there is an exchange hack (like the one in Japan) not all of the investment will be exposed. Although, the rest of the exchange prices are likely to follow suit.

What happened to the last attempts?

Well the SEC rejected around 9 attempts from the likes of ProShares, Direxion and GraniteShares. Interestingly the SEC used the exact same reason just reworded for all of the proposals. In all the responses the SEC said “emphasizes that its disapproval does not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment.” It was also noted at the same time, the SEC did concede a notable point: that investors would gain an extra layer of protection by trading exchange-based products for bitcoin – while also contending that possible benefits should be held against other considerations.

In addition “The Commission acknowledges that, compared to trading in unregulated bitcoin spot markets, trading a bitcoin-based ETP on a national securities exchange may provide some additional protection to investors, but the Commission must consider this potential benefit in the broader context of whether the proposal meets each of the applicable requirements of the Exchange Act.”

All these issues seem to be addressed by the new application from Bitwise Asset Management. I’m sure there will still be a rollercoaster of a ride left until we see a Bitcoin ETF but nevertheless, progress has been made and we must await the latest outcome from the SEC.

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The latest application by the company outlines that the proposed ETF will follow the Bitwise Bitcoin Total Return Index measuring the value of bitcoin, plus any “meaningful hard forks.”

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