Katherine Ross

A Matrixport report claiming that the US Securities and Exchange Commission will “reject” spot bitcoin ETFs shocked the crypto world on Wednesday, preceding an 8% drop in the price of bitcoin.



“From a political perspective, there is no reason to approve a bitcoin spot ETF that would legitimize bitcoin as an alternative store of value,” the report claimed. Bitcoin has since rebounded slightly to sit 5% down over the past day, now at $42,500.



Bloomberg Intelligence analyst Eric Balchunas told Blockworks that, without any sourcing, this report does not line up with what Bloomberg Intelligence has been reporting.&nbsp;



“I’m not saying it’s impossible,” he said. “But it would overturn a lot.”



However, if there’s sourcing backing up the report, then it’s “a whole different ballgame.”



Read more: <a href="https://blockworks.co/news/bitcoin-falls-on-anti-etf-news">Bitcoin falls 8% on anti-ETF news, analysts remain confident</a>



Matrixport didn’t immediately return requests for comment on the sourcing of the report. However, in a post on X, head of research Markus Thielen <a href="https://twitter.com/thielen10x/status/1742562367597416732">wrote</a>, “My report is not based on issuer, nor on SEC insider comments. Obviously this is massively out of consensus.”



“And yes, after being the biggest bull all year…I turned bearish today but the arguments were ready.”



In his own post on X, Matrixport co-founder Jihan Wu said, “As intended, this recent report was prepared for Matrixport&#8217;s clients. However, its wide spread by the media was not planned by Matrixport and is beyond our control.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Matrixport&#39;s analysts operate independently, expressing their opinions without any influence or interference from management. They are employed for their superior analytical skills compared to mine and other management team. I have only briefly glanced at the title of the report,…&mdash; Jihan Wu (@JihanWu) <a href="https://twitter.com/JihanWu/status/1742577001633026365?ref_src=twsrc%5Etfw">January 3, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The <a href="https://blockworks.co/tag/matrixport">Matrixport</a> report claims that the current leadership panel that would vote on a spot bitcoin ETF approval is “dominated by Democrats.”



“SEC Chair <a href="https://blockworks.co/tag/gary-gensler">Gensler</a> is not embracing crypto in the US, and it might even be a very long shot to expect that he would vote to approve Bitcoin Spot <a href="https://blockworks.co/tag/etfs">ETFs</a>,” head of research Markus Thielen wrote. “An ETF would certainly enable crypto overall to take off, and based on Gensler’s comments in December 2023, he still sees this industry in need of more stringent compliance.”



Read more: <a href="https://blockworks.co/news/planned-bitcoin-etf-updates">Fees, seeds and APs: What we know — and don’t know — about the planned bitcoin ETFs</a>



The call, which comes ahead of the window of opportunity predicted by both Balchunas and fellow Bloomberg Intelligence analyst James Seyffart, would have made more sense in the fall, Balchunas added.



<h2 class="wp-block-heading">Cash creates a must for Bitcoin ETFs</h2>



The analysts believe there’s a 90% chance that the SEC approves some of the spot bitcoin ETFs in the days leading up to Jan. 10, which is Ark’s deadline. <a href="https://blockworks.co/news/spot-bitcoin-etf-timeline">Ark initially filed for its own bitcoin spot ETF in 2021</a>, but was rejected. It refiled late last year.&nbsp;



“Is there some remote possibility that upper, upper echelons of government step in and pull the plug on [the spot bitcoin ETFs]? I guess. But it would overturn a lot. It would…overturn a lot of reporting, a lot of effort, a lot of work and a lot of signaling from the staff.”



Putting aside the amendments that the potential issuers have filed in recent weeks, “the big deal here is the Grayscale court ruling,” Balchunas said. Pairing that with the work that the <a href="https://blockworks.co/tag/sec">SEC</a> and the firms have put into the proposals makes the likelihood of rejection small in his opinion.&nbsp;



Back in August, a panel of judges <a href="https://blockworks.co/news/judges-grayscale-sec-ruling">handed Grayscale a court win</a> over its application to convert Graycale Bitcoin Trust (GBTC) to an ETF. While the judges only ordered the SEC to re-examine the application, the <a href="https://blockworks.co/news/sec-grayscale-spot-bitcoin-etf">SEC notably didn’t file an appeal to the ruling</a>.



Last week, Balchunas said that the “<a href="https://blockworks.co/news/analysts-weigh-potential-bitcoin-etf-approval">SEC is ready to approve spot bitcoin ETFs</a> but only if they have clear language around cash-only creations and have a signed agreement with an authorized participant.”



<a href="https://blockworks.co/news/valkyrie-blackrock-authorized-participants">BlackRock was the first of a handful</a> of proposals on Friday to file amendments to their S-1s listing authorized participants.



“While we have seen <a href="https://blockworks.co/news/blackrock-etf-team-meetings-sec">frequent meetings between the ETF applicants and staff from the SEC</a>, which resulted in the applicants refiling their applications, we believe all applications fall short of a critical requirement that must be met before the SEC approves. This might be fulfilled by Q2 2024, but we expect the SEC to reject all proposals in January,” the Matrixport report said.



However, <a href="https://blockworks.co/tag/eric-balchunas">Balchunas</a> said that in a scenario where the SEC says that there’s still one issue holding up approval, then he would “call that more of a delay.”



“There was a scenario where, if Ark were to withdraw at the SEC’s request, then the next deadline is March,” he said. However, Balchunas pegs this delay situation “a long shot.”



Ark Invest CEO Cathie Wood said that the “probabilities” of an approval from the SEC “have gone up,” <a href="https://blockworks.co/news/ark-invest-exits-gbtc">though she also cautioned</a> that “this is the SEC and we never know what might happen along the way.”



Updated Jan. 3, 2023 at 11:29 am ET: Added comments from Markus Thielen and Jihan Wu.



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SEC delaying spot bitcoin ETFs ‘not impossible,’ but unlikely: Balchunas

Bitcoin briefly topped $35,000 on Monday night, hitting a high not seen in over a year.



The listing of BlackRock&#8217;s iShares Bitcoin Trust on the DTCC website fueled the rally, following last week&#8217;s false tweet suggesting the company had received the US Securities and Exchange Commission’s approval.



As of Tuesday morning, however, the BlackRock DTCC listing no longer appeared on the website, a fact that did not seem to surprise Bloomberg analysts Eric Balchunas and James Seyffart.



Balchunas said he’s “not totally shocked” <a href="https://blockworks.co/news/blackrock-ibtc-bitcoin-etf">by the listing being removed</a>.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Oh yeah look at that.. good catch, not totally shocked my guess is they were told to or want to wait until they are days not weeks or months away. As I said yest it was surprising to see it on there&mdash; Eric Balchunas (@EricBalchunas) <a href="https://twitter.com/EricBalchunas/status/1716833119364669924?ref_src=twsrc%5Etfw">October 24, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“My guess is they were told to or want to wait until they are days, not weeks or months away. As I said [yesterday] it was surprising to see it on there.”



Following the news, bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) fell slightly before regaining and holding around $33,000 at the time of publication.&nbsp;



GSR’s senior strategist Brian Rudick told Blockworks that “the latest bitcoin rally is in hopes for a US spot bitcoin ETF approval [that] will likely have legs into the actual approval and is absolutely a long-term positive for crypto.”



Read more: <a href="https://blockworks.co/news/bitcoin-etf-price-rally">Is bitcoin’s ETF-fueled rally to $35K premature? Well, maybe</a>



Bitcoin is the “benefactor of yield fears within crypto, and it seems to be at the helm of industry momentum,” eToro US investment analyst Callie Cox said.



“I’d expect to see Bitcoin and Ethereum pull ahead of other protocols as crypto-centric investors look for places to hide.”



However, as Ledn’s chief investment officer John Glover noted, the rising price of bitcoin tends to filter money into other cryptocurrencies.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-ether-derivatives-trading">CME says Q3 open interest for bitcoin, ether derivatives hit all time highs</a>



“This means there is a very real possibility that the launch of one or more spot ETFs could lead to the next major bull run in the entire cryptocurrency ecosystem,” he said.



Galaxy’s head of firmwide research, Alex Thorn, also sees “upside catalysts” in the next few months.&nbsp;



“The general bitcoin uptrend has significant retail involvement, with on-exchange volumes surging in anticipation of forthcoming ETF approvals. Today, bitcoin continues to show strength trading in the $34k range. The gamma squeezes no doubt caused some pain to options market makers, and some of the dynamics are still at play in the options markets, though with some of the covering that occurred, the risk of explosive upside in the near term is somewhat reduced.”



Dealers, Gray noted, still face “significant upside risk” with a “continued drop of ETF-related headlines over the next couple months.”



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Bitcoin faces ‘upside catalysts’ in the next few months

Ben Strack

As Ark Invest and 21Shares remain in pursuit of a spot bitcoin ETF, they’re also looking to bring three other crypto funds to market.



The new product proposals were submitted to the Securities and Exchange Commission the same day <a href="https://blockworks.co/news/sec-delays-bitcoin-etf-decision">the regulator chose to delay its decision</a> on the companies’ ETF that would hold bitcoin directly.&nbsp;&nbsp;



Empowered Funds, a subsidiary of white-label ETF platform Alpha Architect, is listed as the investment adviser of the proposed funds. 21Shares and Ark Invest would serve as sub-advisers.&nbsp;



One of the ETFs would invest in cash-settled bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME), according to an Aug. 11 <a href="https://www.sec.gov/Archives/edgar/data/1592900/000182912623005338/easeries_485apos.htm">filing</a>. The planned offering — to be called Ark 21Shares Active Bitcoin Futures ETF (ARKA) — can also hold US Treasury securities, money market instruments and repurchase agreements.&nbsp;



A second proposed fund, the Ark 21Shares Active On-Chain Bitcoin Strategy ETF (ARKC), would similarly invest at least 25% in bitcoin futures contracts, or ARKA — and the remaining assets to cash and cash equivalents.



But unlike ARKA, the so-called on-chain fund uses a proprietary trend indicator to formulate its allocation strategy by determining whether the bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) market trend is bullish or bearish. Inputs to the trend indicator could include historical price data or on-chain data, the <a href="https://www.sec.gov/Archives/edgar/data/1592900/000182912623005339/easeries_485apos.htm">document</a> adds. 



Finally, a <a href="https://www.sec.gov/Archives/edgar/data/1592900/000182912623005340/easeries_485apos.htm">proposed</a> Ark 21Shares Digital Asset and Blockchain Strategy ETF — to trade under the ticker ARKD — would allocate to bitcoin futures contracts or ARKA, as well as the equities of companies across the blockchain, digital asset and fintech industries.



A spokesperson for <a href="https://blockworks.co/tag/ark-invest">Ark Invest</a> declined to comment on the filings. <a href="https://blockworks.co/tag/21shares">21Shares</a> did not immediately return a request for comment. 



<a href="https://blockworks.co/news/ark-files-for-bitcoin-etf">Ark and 21Shares linked up in 2021</a> to try to launch a spot bitcoin ETF. The <a href="https://blockworks.co/tag/sec">SEC</a> denied the companies’ proposed ETF in March 2022 and blocked a second attempt from the companies in January.



The two companies <a href="https://blockworks.co/news/21shares-ark-invest-spot-bitcoin-etf">re-filed for a spot bitcoin ETF in April</a>. The proposal came a couple months before asset management giant <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval">BlackRock entered the bitcoin ETF race in June</a> — leading firms who had previously tried to launch such a fund to quickly re-file.&nbsp;



The SEC said Friday it would “institute proceedings” to determine whether it should approve or deny the Ark 21Shares Bitcoin ETF — a type of fund the regulator has never greenlit.&nbsp;



Bloomberg Intelligence analyst Eric Balchunas pointed out one of the ETF filings in a Monday <a href="https://twitter.com/EricBalchunas/status/1691104102338695168">tweet</a>. Nate Geraci, president of The ETF Store, called the filing “odd,” adding that it could mean Ark Invest is “not that confident” its spot bitcoin fund will be approved.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Odd filing given how saturated this space is&#8230; Wonder if there&#39;s anything to read into here re: ARK&#39;s confidence around spot btc approval (which if that happens, these blockchain ETFs would face an addn&#39;l headwind in terms of competition). So maybe ARK not that confident.&mdash; Nate Geraci (@NateGeraci) <a href="https://twitter.com/NateGeraci/status/1691116993103974400?ref_src=twsrc%5Etfw">August 14, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Many crypto ETFs are among the top-performing funds so far this year. The Valkyrie Bitcoin Miners ETF (WGMI) leads the way, with a year-to-date return of 219%, <a href="https://etfdb.com/compare/highest-ytd-returns/">according</a> to VettaFi’s ETF Database.&nbsp;&nbsp;&nbsp;



The ProShares Bitcoin Strategy ETF (BITO) — the first and largest bitcoin futures ETF — is up 71% since the start of the year. The Global X Blockchain and Bitcoin Strategy ETF (BITS), which deploys a blended strategy similar to the proposed ARKD fund, has returned 112% so far in 2023.&nbsp;



Ark and 21Shares are not the only ones on a crypto product proposal spree. Bitwise Asset Management and ProShares <a href="https://blockworks.co/news/eth-related-etf-proposals">combined for seven ether-related ETF proposals</a> earlier this month.



Bitwise also has an active spot bitcoin ETF filing. The SEC is set to <a href="https://blockworks.co/news/sec-bitcoin-etf-september">approve, deny or say it needs more time</a> to consider that product by Sept. 1.



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Amid spot BTC ETF effort, Ark and 21Shares seek to launch other crypto funds

<div id="highlights-block_623ddfe02ffb2" class="highlights">
 <ul>
 <li>The proposal to broaden the definition of an exchange could help spot bitcoin ETF approval by mid-2023, according to Bloomberg Intelligence analysts</li>
 <li>Bitwise Asset Management Chief Investment Officer Matt Hougan says there is a pathway to approve a spot bitcoin ETF without this change</li>
 </ul>
 
</div>



ETF issuers in the US continue vying to launch a fund that would invest in bitcoin directly, but Bloomberg Intelligence analysts predict one won’t be approved until crypto platforms are forced to comply with Securities and Exchange Commission (SEC) rules.



A rule change proposed by the SEC could be the key to a spot bitcoin ETF approval by the middle of 2023, Eric Balchunas and James Seyffart said in a research note published Thursday.&nbsp;



The SEC proposed to broaden the definition of an exchange in the Securities and Exchange Act of 1934 to include “systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities,” according to a <a href="https://www.federalregister.gov/documents/2022/03/18/2022-01975/amendments-regarding-the-definition-of-exchange-and-alternative-trading-systems-atss-that-trade-us" target="_blank" rel="noreferrer noopener">January 26 filing</a>. 



“Expanding the definition of an exchange could eliminate the agency&#8217;s primary objection to the products by bringing cryptocurrency platforms under the SEC&#8217;s regulatory framework,” the Bloomberg Intelligence ETF analysts wrote.



The SEC most recently delayed its decision to rule on the proposed bitcoin ETFs by NYDIG and Global X earlier this month.



“The commission has consistently required that the listing exchange have a comprehensive surveillance-sharing agreement with a regulated market of significant size related to bitcoin, or demonstrate that other means to prevent fraudulent and manipulative acts and practices are sufficient to justify dispensing with the requisite surveillance-sharing agreement,” the SEC wrote in its March 10 decisions on the NYDIG and Global X applications. “The listing exchange has not met that requirement here.”



The SEC won’t approve a spot bitcoin ETF without new regulation or surveillance agreements between traditional and crypto exchanges, Balchunas and Seyffart explained.



“Traditional exchanges such as the NYSE would find it almost impossible to secure such accords with every exchange that offers bitcoin trading absent official regulation,” they added.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The proposal to broaden the definition of an exchange would force crypto platforms to comply with SEC rules, potentially satisfying the agency&#8217;s oversight concerns.”</blockquote>



The Bloomberg analysts expect the change to be finalized sometime between November 2022 and May 2023.



<h3 class="wp-block-heading">Fund groups weigh in&nbsp;</h3>



Leah Wald, CEO of Valkyrie Funds, said that based on her company’s interactions with regulators, it makes sense that this would be the final hurdle to overcome.



“They have said all along that they would be hesitant to put an unregulated product into a regulated fund wrapper,” she told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Bringing digital asset exchanges into the fold would remove that objection and likely clear the path for a spot bitcoin ETF.”</blockquote>



Wald said that while it is tough to predict when the SEC could approve such a fund, she does not expect the agency to do so before next summer.



But Matt Hougan, chief investment officer of Bitwise Asset Management, argued that while the redefinition of an exchange could have big implications, there is a pathway to approve a bitcoin ETF without this change.



The SEC&#8217;s rules do not require that the market for the underlying spot commodity be regulated and subject to surveillance agreements prior to approving an exchange-traded product (ETP), he explained. Instead, the agency requires that there is a “regulated market of significant size&#8221; that can be surveilled as a way of gaining proxy surveillance of the market as a whole.



“We and other applicants believe that the CME bitcoin futures market is a ‘regulated market of significant size,’ and believe we have demonstrated this in our applications,” Hougan told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“I continue to think the SEC can and will approve a bitcoin ETF prior to redefining what an exchange is.”</blockquote>



Valkyrie and <a href="https://cms.blockworks.co/bitwise-tries-once-more-for-spot-bitcoin-etp/" target="_blank" rel="noreferrer noopener">Bitwise</a> are among the swathe of issuers that have not been able to get their proposed bitcoin ETPs approved. The SEC, however, has approved several ETFs investing in bitcoin futures contracts, including one from Valkyrie.



Executives at several fund groups <a href="https://cms.blockworks.co/will-bidens-executive-order-speed-up-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">recently told Blockworks</a> they thought President Biden’s <a href="https://cms.blockworks.co/whos-in-charge-of-what-breaking-down-the-crypto-executive-order/" target="_blank" rel="noreferrer noopener">executive order</a> on digital assets could be a bullish indicator for spot bitcoin ETF approval.



Grayscale Investments is trying to convert its Bitcoin Trust (GBTC) to an ETF. <a href="https://cms.blockworks.co/support-for-spot-bitcoin-etf-revs-up-as-agency-holds-course/" target="_blank" rel="noreferrer noopener">Public comments</a> have rolled in from investors and crypto companies executives, many of which supporting the move. The SEC is expected to rule on the conversion by July, after a 240-day review period.



The biggest impact of the redefinition of an exchange, if it occurs, would be on the prospects for non-bitcoin crypto ETFs, Hougan said.&nbsp;



“If Coinbase were regulated and if it could have surveillance techniques in place,” he noted, “you could build ETPs on a wide variety of crypto assets, or crypto index ETFs.



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Is a Change to ‘Exchange’ Definition Key to Bitcoin ETF Approval?

<div id="highlights-block_61c36e84b351b" class="highlights">
 <ul>
 <li>The ProShares Bitcoin Strategy ETF (BITO) underperformed spot bitcoin by 2.34% from its launch on Oct. 19 to Dec. 21, according to Bloomberg Intelligence Analyst James Seyffart</li>
 <li>BITO’s December inflows total roughly $50 million so far, compared to $1.2 billion in October, FactSet data shows</li>
 </ul>
 
</div>



The underperformance of the US’s first bitcoin futures ETF relative to the crypto asset’s spot price in its first two months of trading limit the types of investors interested and ultimately its asset growth, according to industry professionals.&nbsp;



But offerings that include a smaller allocation to bitcoin futures contracts could see more demand in 2022, some argued, particularly among longer-term investors.



Bloomberg Intelligence ETF Analyst James Seyffart noted in a Twitter post on Wednesday that the ProShares Bitcoin Strategy ETF (BITO) underperformed spot bitcoin by 2.34% from its launch on Oct. 19 to Dec. 21.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The first <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> futures ETF &#8212; <a href="https://twitter.com/search?q=%24BITO&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$BITO</a> &#8212; is trailing spot by 2.34% with just about two months of data. Extrapolating that out: it will underperform spot by 13-14% in it&#39;s first year&#8230; <a href="https://t.co/2saAfp20u0">pic.twitter.com/2saAfp20u0</a>&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1473652943689863173?ref_src=twsrc%5Etfw">December 22, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Extrapolated out over 12 months, Seyffart added, BITO would trail spot bitcoin by between 13 and 14% in its first year on the market.&nbsp;&nbsp;



“That’s a pretty big gap between bitcoin and your fund,” Bloomberg Intelligence ETF Analyst Eric Balchunas told Blockworks, noting that many financial advisors likely would not invest in the offering on behalf of clients. “That said, I think BITO is a great trading tool, and I think it will continue to be used for short-term exposure. It tracks great short-term, and its correlation is awesome.”



Though BITO was the first bitcoin futures ETF to launch in the US, the Valkyrie Bitcoin Strategy (BTF) launched three days later. It currently has about $55 million in assets under management, according to Valkyrie Investments’ website.



The VanEck Bitcoin Strategy ETF (XBTF) and the Global X Blockchain and Bitcoin Strategy ETF (BITS) launched in November. XBTF and BITS have $17 million and $9 million in assets, respectively.



Unlike the other three bitcoin futures products, BITS also invests in ​​US companies that directly own digital assets and may gain access to blockchain companies indirectly through ETFs.



Industry professionals <a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/" target="_blank" rel="noreferrer noopener">have labeled roll costs</a> as one of several downsides to bitcoin futures ETFs. Maintaining a smaller allocation to bitcoin futures allows the firm to be “nimbler” to potentially find better value and reduce roll costs, Global X Research Analyst Matt Kunke <a href="https://cms.blockworks.co/global-x-offers-different-type-of-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">told Blockworks last month</a>.



“I’m going to be watching it next year to see if it gets any looks,” Balchunas said of <a href="https://www.globalxetfs.com/introducing-bits-the-case-for-blockchain-equities-and-bitcoin-futures/" target="_blank" rel="noreferrer noopener">the Global X offering</a>.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“BITS just seems like it’s one of those ETFs that could be palatable enough to an advisor given that small roll [cost], but at the same time have more kick than a blockchain stock ETF.”</blockquote>



<h3 class="wp-block-heading">Remaining demand for bitcoin futures ETF?</h3>



BITO notched inflows of more than $1.2 billion from its launch until the end of October, according to FactSet Data. Flows into the product have slowed, as they totaled $542 million in November and $50 million so far in December.&nbsp;



“Obviously it has completely plateaued, as all of the people who wanted to buy BITO have bought it basically,” Balchunas said. “Maybe those flows trickle in for the next couple months.”



Dave Nadig, CIO and director of research for ETF Trends and ETF Database, said that investors, particularly those who have invested in commodities, understand the deficiencies of futures versus spot.



“The funds really target a small Venn diagram of people who want crypto exposure on a fairly short-term basis but are unwilling or unable to access the crypto markets directly,” he told Blockworks. “I would not expect the [assets under management] to move significantly, as I suspect these funds will be trading vehicles.”



Though Nadig added he does not expect any new “plain-vanilla” bitcoin futures ETFs, other types of products, such as WisdomTree’s Enhanced Commodity Strategy Fund (GCC), could make allocations to bitcoin futures.



GCC, an actively managed ETF seeking to provide broad exposure to a diversified basket of commodities, <a href="https://cms.blockworks.co/wisdomtree-plans-to-launch-more-crypto-offerings-in-2022/" target="_blank" rel="noreferrer noopener">became the first ETF</a> to add bitcoin futures in October.



<h3 class="wp-block-heading">Still no spot bitcoin ETF</h3>



The US Securities and Exchange Commission (SEC) has rejected a variety of <a href="https://cms.blockworks.co/when-will-the-sec-approve-a-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">spot bitcoin ETF proposals</a>, while regulators in Europe, Canada and other regions have allowed such products to trade.



“The SEC is unlikely to approve a spot Bitcoin ETF in 2022, we believe, leaving US investors reliant on less-efficient futures, trusts and themed equity ETFs for fund exposure,” Seyffart wrote in a Dec. 9 research note, adding that Ethereum futures ETFs could reach US exchanges before a spot bitcoin product.&nbsp;



As part of its <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">denial of VanEck’s planned spot bitcoin fund</a>, the SEC said in a letter that the Cboe BZX Exchange, on which the ETF’s shares would have traded, “has not met its burden” that the proposal meets the requirements of the Securities Exchange Act of 1934.



“The SEC cannot have been much more clear in their guidance. Any approval would be a shocking surprise,” Nadig said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“I give essentially zero odds to a pure Bitcoin ETF in 2022.”</blockquote>



Balchunas said he always expected the ProShares Bitcoin Strategy ETF to be used by traders more than long-term investors, noting that his optimism for an ETF that invests directly in bitcoin remains strong.&nbsp;



“I think a spot bitcoin ETF, and ultimately different takes on it — like a spot Ethereum, a crypto picking active ETF, a crypto basket…S&amp;P of crypto — is going to fly off the shelves,” he said, “and be the big category that we all are expecting.”



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What Does Demand For Bitcoin Futures ETFs Look Like in 2022?

<div id="highlights-block_617996312e2a3" class="highlights">
 <ul>
 <li>VanEck’s ETF will cost 65 basis points compared to the 95bps price of bitcoin futures ETF by ProShares and Valkyrie Investments</li>
 <li>ProShares being first to market was an important advantage as competitors will be facing “a long, uphill slog trying to chase down BITO,” ETF Store president says</li>
 </ul>
 
</div>



VanEck appears to be ready to bring to market its bitcoin strategy ETF after its <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/1137360/000113736021000971/ck0001137360-20201231.htm" target="_blank" rel="noreferrer noopener">latest SEC filing</a> on Wednesday, though industry watchers said demand for the offering could be muted compared to similar products that launched last week.



The launch of the VanEck Bitcoin Strategy ETF (XBTF) was slightly delayed, though the firm declined to comment on why. VanEck had <a href="https://www.sec.gov/Archives/edgar/data/0001137360/000113736021000952/vaneckbitcoinstrategyetf48.htm" target="_blank" rel="noreferrer noopener">filed a new date on </a>Tuesday, stating that the filing was expected to become effective on Wednesday.



Bloomberg Intelligence ETF Analyst Eric Balchunas said in a Twitter post that the latest filing means the ETF will likely start trading on Thursday or Friday.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">VanEck has officially &#39;gone effective&#39; (legalese for ready for launch) So good chance <a href="https://twitter.com/search?q=%24XBTF&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$XBTF</a> starts trading Friday poss Thursday. Waiting on listing announcement or company to confirm tho.. <a href="https://t.co/bbFbWatnJ5">pic.twitter.com/bbFbWatnJ5</a>&mdash; Eric Balchunas (@EricBalchunas) <a href="https://twitter.com/EricBalchunas/status/1453398925373755394?ref_src=twsrc%5Etfw">October 27, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“VanEck is excited to offer a long-awaited bitcoin exchange traded product to the U.S. market,” Ed Lopez, Head of ETF Product at VanEck, previously told Blockworks. “We were the first asset manager to file for a bitcoin futures ETF back in 2017, and we are offering what would be the most competitively priced ETF in the category when we come to market.”



A VanEck spokesperson did not immediately respond to Blockworks’ request for comment.



<h3 class="wp-block-heading">What will the demand be?</h3>



The fund is likely to be the third bitcoin futures ETF to launch in the US, following the launches of similar funds by ProShares and Valkyrie Investments last week.&nbsp;



The ProShares Bitcoin Strategy ETF (BITO) has <a href="https://cms.blockworks.co/proshares-bitcoin-futures-based-etf-to-begin-trading-tuesday/" target="_blank" rel="noreferrer noopener">more than $1 billion</a> in assets under management after trading for a week. Valkyrie Investments’ Bitcoin Strategy ETF (BTF) began trading on Friday, <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">trading $10 million in its first five minutes</a> on the market.



While the Valkyrie and ProShares offerings carry a fee of 95 basis points, the VanEck product will cost 65 basis points.&nbsp;



“This ETF should get some looks given its lower price point and VanEck’s reputation, but initial demand will be muted compared to the ProShares offering,” Nathan Geraci, president of The ETF Store, told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“First mover was such an important advantage in this particular category and competitors will be facing a long, uphill slog trying to chase down BITO.”</blockquote>



Dave Nadig, CIO and director of research for ETF Trends and ETF Database, said that VanEck’s differentiator will be price, which will matter but will likely not create “a flood” of inflows.&nbsp;



“In general, later entrants will have a tougher time,” he explained. “Liquidity begets liquidity in the ETF market, especially for access-oriented products like these.”

VanEck Ready to Launch Delayed Bitcoin Futures ETF

<div id="highlights-block_61795c02435e3" class="highlights">
 <ul>
 <li>Fund would provide an easily accessible way for investors to hedge their bitcoin position without selling, Brinker Capital senior portfolio manager says</li>
 <li>A similar fund that launched on the Toronto Stock Exchange in April has about $11 million (CAD) in net assets</li>
 </ul>
 
</div>



Fund group Direxion is seeking to launch an offering that would allow investors to systematically short bitcoin futures just days after the first bitcoin futures ETFs in the US hit the market.



The Direxion Bitcoin Strategy Bear ETF offers managed short exposure to CME bitcoin futures contracts, according to <a href="https://www.sec.gov/Archives/edgar/data/1424958/000119312521308123/d248159d485apos.htm" target="_blank" rel="noreferrer noopener">an SEC disclosure</a> filed Tuesday evening. It does not invest directly in bitcoin. The filing does not indicate a ticker or expense ratio for the planned offering.



“The fund will generally maintain its short exposure to bitcoin futures during periods in which the value of bitcoin is flat or declining as well as during periods in which the value of bitcoin is rising,” the document states.



The proposed fund may also short an ETF that invests in bitcoin futures and is expected to hold money market funds, deposit accounts with institutions with high-quality credit ratings, and short-term debt instruments, including US government securities and repurchase agreements.



New York-based Direxion has 79 ETFs trading in the US with combined assets of nearly $28 billion, <a href="https://www.etf.com/channels/direxion-etfs" target="_blank" rel="noreferrer noopener">according to ETF.com</a>. A spokesperson for the firm did not immediately return Blockworks’ request for comment. 



The filing comes after ProShares and Valkyrie Investments launched ETFs that would invest primarily in bitcoin futures contracts — the first of their kind in the US.&nbsp;



The ProShares Bitcoin Strategy ETF (BITO) has <a href="https://cms.blockworks.co/proshares-bitcoin-futures-based-etf-to-begin-trading-tuesday/" target="_blank" rel="noreferrer noopener">more than $1 billion</a> in assets under management after trading for a week. Valkyrie Investments’ Bitcoin Strategy ETF (BTF) also debuted last week, <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">trading $10 million in its first five minutes</a> on the market.



Valkyrie also <a href="https://cms.blockworks.co/valkyrie-files-for-leveraged-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">filed on Tuesday</a> to launch a leveraged ETF that would provide 1.25x exposure to the bitcoin reference rate.



While early demand for long bitcoin futures ETFs has been strong, there is likely demand on the other side as well, according to Grant Engelbart, senior portfolio manager at Brinker Capital.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“Direxion is also likely taking advantage of the recent approvals with a product that is similar but different and arguably important to the marketplace,” he told Blockworks. “There is also a potential to take advantage of the steeply contangoed bitcoin futures curve.”</blockquote>



The Direxion fund would be similar to one already trading in Canada: Horizons ETFs Management’s <a href="https://www.horizonsetfs.com/ETF/BITI" target="_blank" rel="noreferrer noopener">BetaPro Inverse Bitcoin ETF (BITI)</a>. That fund launched on the Toronto Stock Exchange in April and has about $11 million (CAD) in net assets.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">They have a -1x bitcoin futures ETF in Canada called <a href="https://twitter.com/search?q=%24BITI&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$BITI</a> and while its gotten pretty wrecked, when it works it WORKS (as bitcoin tends to sells off fast), here it is up 52% in 6 wks flat earlier this yr. Thus, this ETF will prob find an audience (of vol-seeking traders) <a href="https://t.co/mtRElkw1cv">pic.twitter.com/mtRElkw1cv</a>&mdash; Eric Balchunas (@EricBalchunas) <a href="https://twitter.com/EricBalchunas/status/1453112630160277509?ref_src=twsrc%5Etfw">October 26, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Engelbart said he believes the proposed Direxion fund would see adequate demand split between active traders and short-to-intermediate-term investors, noting that there will be people who feel bitcoin is overvalued that will want to systematically short.&nbsp;



“While many people hold bitcoin in some fashion, there is not an easy way to play the other side of the market outside of futures, which have limited retail accessibility,” he explained. “There are many cryptocurrency investors that are sitting on large gains, and this tool provides a vehicle to hedge their position without selling that’s easily accessible.”