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No matter where you go these days, you’ll find a lot of people interested in purchasing Bitcoin, even in the midst of its current downturn. And Bitcoin can be acquired in a variety of ways. There are dozens of exchanges that facilitate Bitcoin trading, Bitcoin ATMs are popping up on street corners around the world, and more and more companies are willing to pay you all or part of your salary in the cryptocurrency. However, for retail investors within the United States, the vast majority of avenues with which to purchase Bitcoin require hodlers either to self-custody their crypto or entrust it to a third party provider. While there are plenty of crypto proponents (myself included) who will tell you that owning actual Bitcoin rather than a derivative or pegged substitute is the only way to go, there are a lot of individuals and companies in the world who would like to get involved in Bitcoin ownership without buying the “physical” cryptocurrency itself.
Enter Stage Right: The Bitcoin ETF
An ETF or Exchange Traded Fund is a type of security that attempts to maintain a price peg to a specific index, commodity, or asset and that can be traded on a stock exchange. ETFs are attractive to investors because they oftentimes allow the investors to more easily exit and enter trading positions than if they were directly holding the asset. For example, if you wanted to diversify your portfolio across the entire S&P 500, it would be quite burdensome to actively buy and sell stocks for five hundred different companies to get that level of exposure. Or if you wanted to invest in gold, it would be much simpler to purchase shares of a gold ETF rather than to install a vault in your home to keep your treasure trove safe from thieves.
A Bitcoin ETF operates in the same way. The ETF operator accepts investments from retail and institutional users in the local currency and uses that money to purchase a specified amount of Bitcoin. The investor then receives shares in the ETF, which are pegged to the value of the underlying Bitcoin, without ever having to convert Bitcoin into another currency or maintain access to a digital wallet or private keys. Bitcoin can arguably be rather difficult to self-custody and Bitcoin ETFs are opening up Bitcoin investing to a host of investors globally who have remained on the fence up to this point.
Bitcoin ETFs around the World
There are a variety of ETFs around the world these days that investors can buy into if they have access to the markets where the ETFs trade:
Canada
Canada made waves back in February 2021 by becoming the first country to approve a Bitcoin ETF. The Purpose Investments Bitcoin ETF launched in mid-February and experienced significant demand almost immediately, reaching over $1 Billion Canadian dollars in assets under management (AUM) exactly one month after it opened.
The ETF train in Canada did not stop with just the Purpose Investments Bitcoin ETF either. Since its approval, more than ten other ETFs have joined the fray and each has tens of millions of dollars worth of Bitcoin under management.
Brazil
The country of Brazil is a recent entrant into the Bitcoin ETF game, with investment firm QR Capital’s QBTC11 Exchange Traded Fund having received approval to list from Brazil’s Securities and Exchange Commission in March 2021 and having officially started trading less than a week ago.
Switzerland
Switzerland has become the de facto leader in crypto ETPs (Exchange Traded Products), which are extremely similar in form and function to ETFs, within the Eurozone. The company 21Shares, based in Zug, Switzerland, has launched its Bitcoin ETP on stock exchanges located in Switzerland, Germany, France, Austria, and the Netherlands, and expects to launch the ETP in the U.K. shortly.
Similarly, ETC Group, based out of London in the U.K., has issued its own ETPs both in the U.K and in Switzerland. Its Bitcoin ETP has also seen substantial demand and currently boasts several hundred million euros worth of Bitcoin under management.
U.S. Regulators Are Putting the Brakes on ETF Approval
The U.S. economy is far and away the largest economy in the world and has been for quite some time. While the news of Bitcoin ETFs getting approval and exposure in other countries is exciting to say the least, Bitcoin investors are anxiously awaiting the approval of a Bitcoin ETF within the United States and the expected boost both to the number of Bitcoin adherents and to the price of the cryptocurrency itself.
Bitcoin and Bitcoin ETFs, however, have had a long, difficult relationship with regulators in the United States, starting as early as 2013 when the Winklevoss twins submitted the very first registration with the U.S. Securities and Exchange Commission (SEC) for a Bitcoin ETF. That first registration was summarily rejected by the SEC shortly after submission and various subsequent ETF registrations by other companies within the Bitcoin space have received the same treatment.
That said, a new day may be dawning for the prospects of Bitcoin ETFs within the United States. The current chairman of the SEC, Gary Gensler, has been hailed as a potential godsend for Bitcoin’s chances of finally getting an ETF registration across the finish line as he has been supportive of cryptocurrencies in the past and even taught a course on blockchain during his tenure at the Massachusetts Institute of Technology (MIT). Only time will tell how cautious chairman Gensler will be toward Bitcoin and other cryptocurrencies and whether it will be his administration that finally approves a Bitcoin ETF to trade on a U.S. stock exchange.
U.S. Bitcoin ETF: Coming to a Stock Exchange Near You
Although approval of a Bitcoin ETF by the SEC is not a surefire bet, cryptocurrency companies are aggressively vying with one another to become the first to receive approval. There are currently eleven active ETF registrations sitting with the SEC, all of them having been filed in the past six months:
The most recent application, filed earlier this morning, came from Ark Invest, an investment firm run by Cathie Wood, one of the best investors of the current era and a staunch Bitcoin bull who predicted late last year that Bitcoin could grow to over $500,000 U.S. dollars per coin.
Although the news coming out of the ETF space is certainly positive, it may still be quite some time before the eleven currently active registrations are resolved by the SEC. The SEC’s decision on the first registration, submitted by VanEck Digital Assets, was originally delayed for two months by the SEC in April of this year only for the SEC to push the decision back even further less than two weeks ago.
It may be only a matter of time before the United States finally gets a Bitcoin ETF, but there are still various ways to invest in Bitcoin in the meantime. If you do decide to invest in Bitcoin before an ETF is approved within the United States, make sure to weigh your options and do your own research. You are responsible for your own investment choices and shouldn’t rely on the SEC or anyone else to make the decision for you.
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