The value of bitcoin [BTC-USD] skyrocketed earlier this year when it reached its highest-ever close of $64,863.10 on 14 April, up 123.65% year to date. However, the value didn’t stick and bitcoin was quick to fall, closing at $48,542.95 just 10 days later, down 12.26% from its peak.
More recently, bitcoin’s value fell even lower and on 21 July, closed at $31,110.69, its lowest value since 21 January. Although bitcoin’s value has recovered somewhat, closing at $ 47,706.12 on 24 August, it is still far from the all-time high it reached in April.
Bitcoin's rise year-to 14 April when it hit all-time high
Despite bitcoin’s volatility, or in some cases because of it, many investors are turning to bitcoin ETFs. So far, these have been met with scepticism from the US Securities and Exchange Commission (SEC) — thus many applications to start a bitcoin ETF in the US are yet to be approved. However, other countries have already started approving bitcoin ETFs, and pressure is piling on the US. The recent appointment of Gary Gensler as the new chairman of the SEC could mark a new opportunity for US-based issuers.
The future of investing?
Earlier this month, Paris-based asset manager Melanion Capital was granted approval to launch its own bitcoin ETF. The Melanion BTC Equities Universe UCITS ETF will ‘track the performance of the Melanion Bitcoin Exposure Index, an index composed of companies with significant activities in the bitcoin theme,’ according to a Melanion press release.
“Holding our ETF is a better alternative than a straight investment in bitcoin, as it invests in a diversified basket of companies with significant activities in the bitcoin thematic, thus eliminating the risks with which it is usually associated with bitcoin, like loss or piracy,” commented Cyril Sabbagh, head of ETF at Melanion Capital in the press release.
Meanwhile, in the US, there have been a flurry of new filings from ETF issuers seeking approval for their bitcoin ETFs from the SEC. “Currently, investors can only look to ETFs, like RIGZ [the Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF], that provide indirect exposure to crypto,” said Wes Fulford, CEO of Viridi Funds speaking to Bloomberg. “If the SEC were to approve of an ETF, this would be a huge step for the industry.”
“Currently, investors can only look to ETFs, like RIGZ [the Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF], that provide indirect exposure to crypto. If the SEC were to approve of an ETF, this would be a huge step for the industry” - Wes Fulford, CEO of Viridi Funds
Gensler has stated that his priority when it comes to approving a bitcoin ETF is to protect investors. In his first major speech focused on cryptocurrencies, Gensler suggested that he is more open to an ETF that exclusively focuses on bitcoin futures, which would require investors laying down a substantial amount of capital on margin to trade. While it’s a step in the right direction, it’s not the same as a bitcoin-backed fund, which is what most crypto fans have been hoping for.
“Indeed, bitcoin’s main concerns for institutional investors are hack, theft, loss, storage, security or crime,” said Sabbagh. “By investing in equities replicating the bitcoin performance, investors can achieve diversified asset allocation that was not available before. Given bitcoin’s absence of correlation to traditional assets, and the ETF’s UCITS character, allocators should certainly be interested.”
The other side of the coin
Despite bitcoin’s rise in popularity over recent years, there are still some sceptics. Chief among them is Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, who said that “cryptocurrency is 95% fraud, hype, noise and confusion,” while speaking at the Pacific Northwest Economic Regional Annual Summit earlier this month.
Meanwhile, Palantir Technologies is also showing its cautiousness around cryptocurrencies. While it was announced in May that the company will accept bitcoin as a form of payment for its products and services, it recently made a $50.7m investment in buying gold bars.
Embracing non-traditional currencies “reflects more of a worldview,” Shyam Sankar, the chief operating officer at Palantir, said in an interview with Bloomberg. “You have to be prepared for a future with more black swan events.”
As for bitcoin ETFs, with enough investor demand, it would seem fairly certain that they will be approved eventually. What’s uncertain is how long it will take for the SEC to set up the regulations that it would feel appropriately protects investors. In the meantime, it’s likely that applications for bitcoin ETF approval will continue to stack up while the market outside of the US continues to grow.