Lawyer at Firm Advising Winklevoss Twins Tapped as SEC’s ETF Regulator

Dalia Blass of the Ropes & Gray law firm has been tapped to head the SEC’s Division of Investment Management which regulates, and approves or disapproves, exchange traded funds (ETFs). Blass’ firm, Ropes & Gray, represents the Winklevoss twins in their efforts to create a Bitcoin ETF.

The SEC famously rejected two Bitcoin ETF proposals earlier this year, citing largely unregulated markets. They did leave themselves an out, however. The Commission indicated that in the event that a regulated futures market for Bitcoin were developed, they might reconsider. Not long ago, the Commodity Futures Trading Commission (CFTC) gave LedgerX permission to create such a futures market.

The SEC agreed to hear an appeal from the Winklevoss twins earlier this year, but few watchers expected the twins to receive a different answer. With Blass at the helm and regulated futures markets being developed, however, this could change.

What is an ETF?

An “exchange traded fund” sounds like something arcane that would only be of interest to high-flying Wall Street types, but it’s actually relatively simple. An ETF tracks the value of an underlying asset or class of assets and is required to buy and sell the underlying asset as shares of the ETF are bought and sold.

ETFs are a convenient way to expose oneself to certain assets that may be difficult to own. For instance, most people don’t have a huge tank in the backyard to store oil or natural gas. If somebody wants to invest in oil and gas but doesn’t want to own and store the actual commodity itself, they can purchase shares of an oil and gas ETF.

Entirely new class of Bitcoin investors

A Bitcoin ETF could open Bitcoin investing to an entirely new class: institutional investors. It is currently difficult for institutions to invest in Bitcoin. Various mutual funds, hedge funds and pension funds have specific rules about the types of assets they are allowed to own.

Institutions are typically allowed to own ETFs, but may not be allowed to own the underlying asset. Bitcoin is difficult to store, requiring both absolute security and adequate backups. Many interested investors are either unwilling or unable to buy and store Bitcoin, but would like exposure to the asset itself. An ETF is quite useful for this purpose.

It’s also extremely challenging to hold actual Bitcoin in tax-advantaged accounts such as IRAs. A Bitcoin ETF would make that much easier since ETFs can be bought and sold just like regular stocks. At the present time, the only way (for most people) to gain exposure to Bitcoin in a tax-advantaged account is to buy shares of the Bitcoin Investment Trust, listed as GBTC. However, because of high demand and limited supply, GBTC shares trade at a huge premium. Until this morning, the premium was a little over 100 percent. Each GBTC share is “backed” by about 0.09 Bitcoin, yet the shares trade at prices far more than the underlying Bitcoin value.

Indeed, following the news about Blass and a critical article by investor Andrew Left caused shares of GBTC to tumble by 25 percent.


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