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Ask anyone that actively follows the exchange traded funds industry what the glaring hole is and they're likely to say a Bitcoin ETF.
This is an ongoing saga. In fact, it's been about eight years since plans for the first Bitcoin ETF were filed and here we are today with universe of approximately 2,400 exchange traded products in the U.S. and still no Bitcoin ETF.
Issuers of all shapes and sizes have tried, in some cases, multiple times. Each time, the Securities and Exchange Commission (SEC) rejects the proposals. Issuers remain undaunted – about a half dozen Bitcoin ETF proposals emerged and reemerged in a recent weeks. That's not surprising. Even if just one Bitcoin ETF is approved in the U.S., smart money says it would eclipse an array of asset-gathering records and likely become a $1 billion fund in a day or two.
Yet for all the increasing institutional adoption and utility of the world's largest digital currency, the near-term outlook for U.S. Bitcoin ETF approval is murky at best. Plenty of market observers and pundits say 2021 is the year for it to happen with some of that thesis rooted in change at the White House. Think again. New Treasury Secretary Janet Yellen is more roadblock than friend to the Bitcoin ETF cause.
Bitcoin ETF Is Becoming More Necessary
No ETF is mandatory per se, but one of the primary advantages of this investment vehicle is that makes accessible and democratizes a variety of asset classes. ETFs will do the same for crypto.
“The ETF wrapper has allowed all levels of investors access to the likes of stocks in South Korea, bank loans, gold, and hedge fund strategies, with a brokerage account,” writes WisdomTree Head of Capital Markets Anita Rausch. “In that easy accessibility, ETFs centralize and amplify liquidity as well as bring transparency and efficiency to costs and execution. The ETF wrapper will be no different in the world of cryptocurrencies and bring all these benefits to bear on one of the newest asset classes such as bitcoin. This wrapper of the masses will bring accessibility, transparency, and liquidity to this new world.”
For advisors, there's added utility with a Bitcoin ETFs, assuming we get one here in the U.S. Conventional ways of owning digital currencies, be it through a brokerage like Coinbase or eToro, or through digital wallets and private keys, aren't conducive to retirement accounts. As gold ETFs prove everyday, a Bitcoin ETF would be compatible with a vehicle such as an individual retirement account (IRA).
“Furthermore, these options are largely closed off from retirement accounts like IRAs and 401Ks,” adds Rausch. “The Investment Company Institute estimates roughly 21% of Americans’ financial assets are held in these accounts. Many Americans are effectively unable to access this asset class with their wealth.”
Access and Transparency
A Bitcoin ETF also improves accessibility because, with the asset currently trading around $55,000, it not approachable for many individual investors, but the ETF wrapper would allow those clients to be involved for some “size.”
Additionally, a Bitcoin ETFs – as many ETFs before it addressing other market segments – would demystify the underlying asset.
“Transparency into the bid/ask spreads as well as that of premium/discounts will give the investor more information and power to choose the most cost-efficient structure,” notes Rausch. “In mutual funds, you don’t know how much the portfolio manager is paying in spread when money is added and redeemed from the fund, and that bid/ask spread drags down the value of the entirety of the mutual fund for all. When you purchase an ETF, you know exactly how much you have paid to enter and exit the investment, and your transaction does not affect any other shareholders.”
Bottom line: Markets need and investors want a Bitcoin ETF. The onus is on regulators to get with the times and make it happen because it's a win-win for all involved, including advisors and clients.
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