This year, as Bitcoin, the largest cryptocurrency by market value, reached an all-time high, at least 18 applications for exchange-traded funds or bitcoin-based ETFs have been submitted to the Securities and Exchange Commission.
None of them have been approved yet and a physical bitcoin ETF is unlikely to be approved this year, Todd Rosenbluth, CFRA’s head of ETF and mutual fund research, told CNBC Make It.
However, SEC President Gary Gensler recently noted that he would be willing to consider a bitcoin ETF based on futures, according to strict rules.
A physical ETF has the underlying assets or securities on which its value is based. In comparison, a futures-based ETF tracks futures contracts, providing exposure to an asset without taking direct ownership. In this case, a physical bitcoin ETF would keep bitcoin and track its price, while a futures-based bitcoin ETF would track bitcoin futures contracts.
Following Gensler’s speech, a handful of companies applied for bitcoin ETFs based on futures at the SEC.
But while Gensler seems more comfortable with futures-based bitcoin ETFs than physical ones, they’re likely still a long way off. “I look forward to a future based [bitcoin] ETF approval is more likely to occur in 2022 than in 2021, ”says Rosenbluth.
This is probably due, in part, to SEC concerns. Along with concerns about fraud and space volatility in cryptocurrencies, the SEC may also be concerned about how demand for a physical bitcoin ETF would affect the overall market.
Future-based bitcoin ETFs would also present unique risks, including that they do not necessarily track the price of the underlying value and incur higher costs, Rosenbluth says.
Steps for SEC approval
So what does all this mean for investors? Not much yet.
The fact that there are numerous potential ETFs does not mean that they are more likely to be approved more quickly, says Rosenbluth. “There are several steps in the potential approval process and each product is often in different stages of that approval process.”
At this point, the SEC is likely to look for more information on each potential fund, he says. And, based on Gensler’s recent comments, it appears that the SEC is first looking for greater regulation within the cryptocurrency space.
While investors may see a lot of headlines about bitcoin ETF submissions or updates within the approval process, that doesn’t necessarily mean anything, Rosenbluth explains.
“I wouldn’t be too focused on where we are, whether the SEC will approve something or not. Until they approve something, investors can’t do anything,” he says. By now, “be patient.”
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