As the establishment of a bitcoin exchange traded fund (ETF) does not seem probable this year, the demands for establishing a crypto-linked ETF have been growing exponentially. This increase in demands is mainly due the interest of institutional investors that are willing to invest in the market of cryptocurrencies and do not want to get involved in the irregularities and insecurities that are associated with the market.
But although the United States Securities and Exchange Commission (SEC) might not be inclined towards allowing the establishment of a bitcoin exchange traded fund in the country anytime soon, there is an alternative that the American investors can choose to buy bitcoin without actually buying it. There exists an alternative way that is now available for the American investors to invest in bitcoin and it is called an exchanged traded note. Although this note is basically listed and regulated in Sweden, the American investors can also join the game of buying it starting next Wednesday. Brokerages are offering american investors the product named as Bitcoin Tracker One, which is quoted under the tag of CXBTF in U.S. dollars. The product initially began its trading on the Nasdaq Stockholm exchange.
This can be seen as a big win for crypto market as the American investors will be more willing to enter the market of cryptocurrency. Anyone investing in dollars can choose to invest in such a product overall boosting the strength of the underlying market. Traders will be able to see a foreign listed asset in U.S. dollars. Shares can be purchased by the investors. Although the trades will be executed in U.S. dollars, their clearance, settlement and holding is done in custody in its home market.
Exchange traded notes (ETN) are different from ETFs as they are backed by their issuers, usually a bank. The strategies employed also don’t fit in to that of a typical fund.
As the bitcoin ETFs are getting rejected by the regulatory body SEC, this seems to be a good way for American investors to invest in crypto. This may also lead towards developing a favorable environment for the establishment of a crypto-linked exchange traded-fund soon. The concerns currently raised by the SEC are majorly related to the manipulation and liquidity that is associated with the underlying market. A proposal for establishing a bitcoin exchange traded fund propsed by the Winklevoss twins was rejected by the SEC recently. It was also backed by Bats BZX. Besides this, SEC is also holding off on its decision regarding the ETF proposal posed forward by VanEck/SolidX.
It was stated by the SEC regarding the manipulation and fraudulent practices in the underlying market that:
Although the Commission is disapproving this proposed rule change, the Commission emphasizes that its disapproval does not rest on an evaluation of whether bitcoin or blockchain technology more generally has utility or value as an innovation or an investment. Rather, the Commission is disapproving this proposed rule change because as discussed in detail below, BZX has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.
The lack of a regulatory framework is also one of the reason SEC is not approving a bitcoin exchange traded fund. It is stated by the SEC that:
The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (“ETPs”) must, in addition to other applicable requirements, satisfy two requirements that are dispositive in this matter. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated.
In a nutshell, this news comes off as welcoming for the crypto market. Such steps will attract more and more institutional investment in the market of cryptocurrency. It will also pave way towards the establishment of a bitcoin exchange traded fund as more positive opinion will be established across the crypto space. Such products will give the American investors all the more reason to enter the game of cryptos more easily. Such inclinations will only result in the betterment of this market.