Casey Wagner

<div id="highlights-block_617c3ad4a2a5d" class="highlights">
 <ul>
 <li>Valkyrie withdraws leveraged bitcoin futures ETF three days after filing </li>
 <li>The SEC has instructed issuers with these types of applications to withdraw, according to a source familiar with the matter</li>
 </ul>
 
</div>



Three days after filing the first leveraged bitcoin futures exchange-traded fund, Valkyrie has withdrawn its application at the Securities and Exchange Commission’s request, according to a source familiar with the matter.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“This strikes me as inconsistent and somewhat problematic,” said Nate Geraci, president of the ETF Store. “The SEC has blessed CME bitcoin futures from a regulatory perspective by allowing bitcoin ETFs to come to market.” </blockquote>



The Securities and Exchange Commission (SEC) has asked other issuers to pull any applications that differ from the already approved structure of investing in bitcoin futures contracts, the source said. 



“Historically, they have allowed leveraged and inverse ETFs to exist in markets they have deemed acceptable,” said Geraci. “For example, the SEC recently greenlit leveraged and inverse VIX ETFs. I’m not sure why bitcoin futures would be any different.”&nbsp;



The Valkyrie XBTO Levered BTC Futures ETF <a href="https://www.sec.gov/Archives/edgar/data/0001877493/000183988221015489/valkbtfx-485apos_102621.htm" target="_blank" rel="noreferrer noopener">was first filed</a> on Tuesday morning. The fund, which intended to <a href="https://cms.blockworks.co/valkyrie-files-for-leveraged-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">trade under the ticker BTFX</a>, would have provided 1.25x exposure to the bitcoin reference rate and hold futures, swaps, options and forwards. The application was withdrawn Friday, according to the <a href="https://www.sec.gov/Archives/edgar/data/0001877493/000138713121010552/valk-aw_102921.htm" target="_blank" rel="noreferrer noopener">filing</a>. 



Investors are now watching to see if Direxion, <a href="https://cms.blockworks.co/proposed-direxion-etf-would-offer-short-exposure-to-bitcoin-futures/" target="_blank" rel="noreferrer noopener">which filed for an ETF</a> that would allow investors to systematically short bitcoin futures on Tuesday, will also withdraw. A Direxion spokesperson declined to comment.



The news came as investors and analysts continue to wait for <a href="https://cms.blockworks.co/vaneck-ready-to-launch-delayed-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">VanEck’s bitcoin futures ETF</a> to launch. The fund was expected to begin trading this week given their <a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/0001137360/000113736021000971/ck0001137360-20201231.htm" target="_blank" rel="noreferrer noopener">post-effective filing</a> was released Wednesday. 



Bitcoin futures-based ETFs began trading last week with the launch of ProShares’ Bitcoin Strategy Fund launched October 19. Valkyrie’s BTF made its Nasdaq debut three days later.



After filing for bitcoin futures ETFs, VanEck and ProShares had also revealed plans in August to launch <a href="https://cms.blockworks.co/vaneck-and-proshares-apply-for-ethereum-futures-etfs/" target="_blank" rel="noreferrer noopener">Ethereum futures products</a>. Both fund managers subsequently <a href="https://cms.blockworks.co/vaneck-proshares-seek-to-withdraw-requests-to-launch-ethereum-etfs/">withdrew the applications</a> for those proposed ETFs. 



Industry professionals said at the time that the SEC may have told the firms that these ETFs are unlikely to be approved anytime soon.



SEC Commissioner Hester Peirce <a href="https://cms.blockworks.co/grayscale-urging-sec-to-approve-bitcoin-spot-futures-etfs-at-same-time/" target="_blank" rel="noreferrer noopener">previously said</a> in an interview with Blockworks that though she couldn’t comment on exactly why ProShares and VanEck withdrew the filings, the SEC is focused on bitcoin-based products.

Valkyrie Pulls Leveraged ETF Application At SEC’s Request

Ben Strack

<div id="highlights-block_617b02fe89410" class="highlights">
 <ul>
 <li>Bloomberg Intelligence analyst says he believes Ethereum futures ETF could come in first half of 2022, before a bitcoin spot ETF </li>
 <li>Reasoning behind ProShares and VanEck withdrawing Ethereum futures ETF applications in August remains unclear</li>
 </ul>
 
</div>



With two bitcoin futures ETFs already on the market and more apparently on the way, industry professionals have weighed in on when an Ethereum futures ETF could launch.



In the days after the launches of the <a href="https://cms.blockworks.co/proshares-bitcoin-futures-based-etf-to-begin-trading-tuesday/">ProShares Bitcoin Strategy ETF</a> (BITO) and the <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/">Valkyrie Bitcoin Strategy ETF</a> (BTF), issuers have filed for other bitcoin ETFs that would not invest directly in the crypto asset.



Valkyrie followed up its launch by <a href="https://cms.blockworks.co/valkyrie-files-for-leveraged-bitcoin-futures-etf/" target="_blank" rel="noreferrer noopener">filing on Tuesday</a> for a leveraged bitcoin futures ETF, which would provide 1.25x exposure to the bitcoin reference rate. Another offering <a href="https://cms.blockworks.co/proposed-direxion-etf-would-offer-short-exposure-to-bitcoin-futures/" target="_blank" rel="noreferrer noopener">proposed by fund issuer Direxion</a> would offer managed short exposure to bitcoin futures contracts.&nbsp;&nbsp;&nbsp;



“I don’t think that the SEC is going to divert its attention to an Ethereum ETF in the very near term,” said Trey Griggs, CEO for GSR’s US business. “But once they’ve gone through this stack of BTC applications … then I think they can very quickly turn their apparatus to an Ethereum futures-based ETF.”



After launching bitcoin futures contracts in 2017, derivatives marketplace CME Group launched Ether futures in February. Ethereum’s price was 4,266.68, as of about 4 p.m. ET on Thursday, according to <a href="https://www.coingecko.com/en?__cf_chl_jschl_tk__=pmd_Cd0RaQP3J.B9YNlXCu26XCWcAQbkdfZOh.GHCHvcvx4-1635427247-0-gqNtZGzNAiWjcnBszQj9" target="_blank" rel="noreferrer noopener">CoinGecko</a>. Its market cap of roughly $500 billion is nearly half of bitcoin’s.



“I believe Ethereum has sufficient trading history,” Griggs told Blockworks, noting that the SEC could allow a futures-based product to launch by the end of the year. “They may argue that it doesn’t, so if there is a delay it will likely be based on the lack of multiple years of trading observations.



“In terms of the analytics and the research and all of the data that they require in order to approve an ETF, including the regulatory footprint and oversight,” he added, “all of those boxes have been checked.”



But the market for Ether futures is currently unlikely to be liquid enough to support the volume of inflows that an ETF could trigger, according to Noelle Acheson, head of market insights at Genesis. Over the past month, Ether futures volumes on the CME have been less than 30% those of bitcoin futures, she noted.



In addition to liquidity concerns, Acheson said that there is still no regulatory clarity on whether ETH is or is not a security, which would likely prevent the SEC from allowing Ethereum ETFs.



Bloomberg Intelligence ETF Analyst James Seyffart told Blockworks that there was about $3 billion in open interest in the bitcoin futures market at the time the SEC began to favor such a product. Ethereum open interest is just over $1 billion, up from about $600 million at the end of September, which means the SEC will likely wait a bit longer.



Seyffart predicts an Ethereum futures-based ETF could launch sometime in the first half of 2022, noting that he believes one will launch before a spot bitcoin ETF.



“The SEC’s probably just going to wait and see how these bitcoin futures ETFs operate,” he added. “Assuming there’s no issues, I don’t see why they could stop, or would stop, an Ethereum futures ETF.”



<h3 class="wp-block-heading">Which issuers are looking to Ethereum?</h3>



VanEck was the first fund manager this year <a href="https://www.sec.gov/Archives/edgar/data/1860788/000093041321001047/c101690_s1.htm" target="_blank" rel="noreferrer noopener">to apply</a> for an Ethereum Trust in May, which would physically hold the crypto asset. WisdomTree Investments followed that up with <a href="https://www.sec.gov/Archives/edgar/data/0001864519/000119312521175426/d153307ds1.htm" target="_blank" rel="noreferrer noopener">a filing of its own</a> later that month, and most recently, Kryptoin in August <a href="https://cms.blockworks.co/kryptoin-files-to-launch-ethereum-etf/" target="_blank" rel="noreferrer noopener">filed for a similar product</a>.



After filing for bitcoin futures ETFs, VanEck and ProShares had also revealed plans in August to launch <a href="https://cms.blockworks.co/vaneck-and-proshares-apply-for-ethereum-futures-etfs/" target="_blank" rel="noreferrer noopener">Ethereum futures products</a>. Both fund managers subsequently <a href="https://cms.blockworks.co/vaneck-proshares-seek-to-withdraw-requests-to-launch-ethereum-etfs/" target="_blank" rel="noreferrer noopener">withdrew the applications</a> for those proposed ETFs.&nbsp;



Some industry professionals said at the time that the SEC likely told the issuers that such products would not be approved any time soon.



A ProShares spokesperson declined to comment on the reason for the withdrawal, and a representative for VanEck did not immediately return Blockworks’ request for comment.



The SEC declined to comment on their view on Ethereum futures-based ETFs and whether the agency had instructed VanEck and ProShares to withdraw their applications. But SEC Commissioner Hester Peirce previously said in an interview with Blockworks that the SEC was focused on bitcoin-based products.



Nathan Geraci, president of The ETF Store, previously said that he expects most issuers that launch a bitcoin futures ETF to also pursue an Ethereum futures fund.



“If an issuer has made the decision to pursue a crypto presence, why limit to a single crypto asset at this early stage?” he noted.



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



ProShares’ BITO has about $1.2 billion assets under management after trading for 10 days. Valkyrie’s BTF <a href="https://cms.blockworks.co/valkyries-btf-trades-10m-in-first-5-minutes/" target="_blank" rel="noreferrer noopener">traded $10 million in its first five minutes</a> on the market, and has grown to $53 million in AUM in its first six days.&nbsp;



Though demand for Ethereum futures ETF might not reach the day-one interest seen from the BTC products, it would be high, Griggs said. He noted that GSR is seeing a “dramatic desire” for institutions and other investors to gain access to altcoin liquidity.&nbsp;



“Despite the robust interest you saw in the BTC [futures] ETF, I think most of the marketplace felt that if they wanted to gain access to bitcoin, they could figure out how to do that and didn’t necessarily need an ETF,” the CEO explained.&nbsp;



Seyffart agreed there would likely be significant demand for such Ethereum products, but they would likely see less interest than the bitcoin futures ETFs.



“This digital gold thesis … is definitely more viable for the traditional financial crowd,” he said. “Obviously the whole DeFi system is basically built on Ethereum, so I’m sure that interests tons of people too.”

Valkryie