Bitcoin users had lost hope of having an Bitcoin ETF when the Winklevoss twins' application was rejected. However, the CEO of ARK Investment Management feels that a Bitcoin ETF may only be a year or two away.
Some may debate the utility of having a Bitcoin ETF when it would be more profitable to hold Bitcoins instead. By holding Bitcoins directly, you get the benefit of price appreciation without having to pay any management fees. However, financial institutions usually have a mandate for investment and direct ownership of Bitcoin wouldn't fit into their investment plan.
A Bitcoin ETF, however, would grant exposure to Bitcoin’s prices and also be highly liquid. ETFs would also help unsophisticated investors to invest in Bitcoins indirectly. These investors would be willing to pay the fund management fee to avoid the hassle of buying Bitcoins from an exchange and taking precautions to store them securely.
Ark Invest - Indirect Exposure
As a registered investment company, ARK Invest is not allowed to directly purchase and hold Bitcoins. So it has invested in the Bitcoin Investment Trust, giving its end investors exposure to cryptocurrency.
Cathie Wood, the CEO of ARK Investment Management told Bloomberg:
“I wouldn’t be surprised if we saw a closed-end fund before a Bitcoin ETF. I don’t think we’ll see an ETF within a year, but maybe within two years and with a lot of education.”
Bitcoin ETFs could provide an avenue for financial institutions to invest in Bitcoin fuel a new rally in the cryptocurrency.
The Securities and Exchange Commission (SEC) has so far been unwilling to approve any of the several Bitcoin ETF proposals. After four years of delay and inaction, the SEC rejected the application of the Winklevoss twins, saying that it could not approve an ETF where the underlying asset is unregulated. The SEC asked other Bitcoin ETF applicants to withdraw their applications. Given that the primary objective of the SEC is to protect investors, the decision did not come as a surprise. The SEC has also started clamping down on ICOs, stating that ICOs with equity-like features would be subject to federal securities laws.
The existing financial regulators have clear boundaries on the assets they regulate. While the SEC regulates securities, the Commodities Futures Trading Commission (CFTC) regulates commodities trading. However, as a totally new asset class, Bitcoin doesn't neatly fall into either of these categories.
The SEC's opposition to Bitcoin ETFs may become meaningless once CFTC-approved trading of Bitcoin futures begins. If an ETF application bases its application on a CFTC-regulated futures market rather than unregulated Bitcoin exchanges, the SEC's entire reason for denying an ETF will become moot. It does seem like a Bitcoin ETF might eventually get approved.