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The price of Bitcoin spiked higher than $59,000 late Thursday after people familiar with the matter reported that the U.S. securities regulator is expected to approve next week the first-ever Bitcoin futures exchange-traded fund product — a “watershed moment” for crypto.
The Securities and Exchange Commission has rejected exchange-traded fund (ETF) applications for Bitcoin in the past.
SEC Chairman Gary Gensler is credited with triggering a rush of ETF filings when he signaled support in August, and reiterated it in September, for a narrow class of Bitcoin ETFs that would invest in futures contracts rather than the crypto itself. Gensler singled out Bitcoin ETFs, which invest in futures contracts that trade on the Chicago Mercantile Exchange and register under the Investments Company Act of 1940, Coindesk reported.
Proposals were filed under mutual fund rules that SEC Chairman Gary Gensler has said provide “significant investor protections,” Bloomberg reported. The SEC declined to comment to Bloomberg.
Gensler has also said recently that crypto is like the “wild West,” lacks sufficient investor protection and he promised the SEC will police the industry to the maximum possible extent.
Bitcoin was trading at $59,850 as of this writing, almost reaching $60,000, the highest since April 2021, when it peaked at $64,869. Futures on crypto-linked stocks rallied in U.S. premarket trading.
Cameron and Tyler Winklevoss, the twins who claim to be the real founders of Facebook, filed the first application for a Bitcoin ETF in 2013. If it’s launched, a Bitcoin fitires ETF fund product will end a nearly decade-long campaign by the $6.7 trillion ETF industry to confirm mainstream acceptance of cryptocurrencies.
The SEC re-stated an earlier warning Thursday about the risks of futures trading in Bitcoin on its official investor education Twitter account.
“Bitcoin, including gaining exposure through the Bitcoin futures market, is a highly speculative investment,” the SEC said in a link to a June investor bulletin. “As such, investors should consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market.”
The timing of the SEC tweet excited Bitcoin fans. Some interpreted it as a sign that an announcement is imminent, the Independent reported.
“Obviously, they wouldn’t tweet this if the ETF was rejected…I guess ETF pump is coming,” @AstronautBTC tweeted.
“When it goes live…BOOM” VRA-Double B @MyBlackCayman responded.
Some analysts expect the SEC to approve at least one Bitcoin futures ETF as soon as next week.
A futures contract requires a buyer to buy shares—and a seller to sell them—at a specific future date unless the holder’s position closes before the expiration date. By contrast, an options contract gives an investor the right, but not the obligation, to buy or sell shares at a specific price at any time, as long as the contract is in effect.
In general, ETFs are considered low-risk investments because they are low cost and hold a basket of stocks or other securities, increasing diversification, according to Investopedia. For most individual investors, ETFs are an ideal way to build a diversified portfolio. They trade like stocks and the dividends of the companies in an open-ended ETF are reinvested immediately. They also tend to realize fewer capital gains than actively managed mutual funds and they trade based on supply and demand.
An ETF that tracks Bitcoin or one underpinned by Bitcoin derivatives has experienced delays coming to market in part because the No. 1 cryptocurrency in the world by market cap remains largely unregulated. The SEC has hesitated to allow an ETF “focused on the new and largely untested cryptocurrency market to make its way to the public.”
The SEC had warned about investing in crypto, saying prices could be manipulated, liquidity might be insufficient, and that Bitcoin’s volatility may be too much for individual investors, Bloomberg reported: “Bitcoin’s last three full-year returns were a 74 percent loss followed by gains of 95 percent and 305 percent.”
The SEC has questioned whether funds would have the information needed to adequately value cryptocurrencies or related products. There have also been questions about validating ownership of the coins held by funds and the threat from hackers, according to Bloomberg.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
