The crypto craze isn’t over, though a Barron’s poll indicates otherwise. True, with bitcoin below $4,000—in late 2017 it was trading at $20,000—it isn’t drawing the attention it once did. But the applications to launch a bitcoin exchange-traded fund continue to pile up.
Blockchain technology promises to transform finance the way the internet transformed communication.
The Winkelvoss brothers, founders of the Gemini cryptocurrency exchange, twice asked the Securities and Exchange Commission for permission to launch such an ETF, with no success. And the fund shop VanEck is awaiting word on a proposal of its own.
The latest application comes from San Francisco-based Bitwise Investments. The proposed Bitwise Bitcoin ETF Trust stands apart from others in that it will use regulated third-party custodians to hold physical bitcoin, and the index that it will track, the Bitwise Bitcoin Total Return Index, will get prices from a number of crypto exchanges.
Now seems like exactly the wrong time to be launching a bitcoin ETF, given the currency’s significant price decline in recent months. A majority of the nearly 3,000 respondents to an online survey by Barron’s said they don’t expect the price to recover.
But Matt Hougan, a veteran of the ETF industry and global head of research for Bitwise, says the decline is no reason to give up on crypto.
“When the market ran up to excessive levels there were clear elements of a bubble. Speculative fever that precipitates bubbles doesn’t mean the underlying development isn’t legitimate, it often accelerates it,” says Hougan. “The technology bubble burst in 1999-2000, but Jeff Bezos is the richest man in the world.”
He adds that institutions that were previously skeptical about investing in crypto during the run-up are now more interested, because of bitcoin’s decline in value. Indeed the endowments of Harvard, Yale, and the Massachusetts Institute of Technology all were revealed to be crypto investors late last year.
Other developments last year could put the wind back in bitcoin’s sails. Digital platforms including one from Fidelity Investments are on the way. Nasdaq said it would launch bitcoin futures. And lawmakers are pushing to change the SEC’s 72-year-old definition of a security to exclude crypto, exempting the currencies from securities law.
However, changing regulations pose a risk to investors. As Bitwise’s filing outlines, current and future regulation could cause the trust underpinning the planned ETF to be liquidated at an undesirable time for shareholders.
Bitwise filed to launch an ETF based on a variety of cryptocurrencies last year, but Hougan thinks that an ETF based on bitcoin will get the go-ahead from the SEC first, given it has a more developed ecosystem than, say, Ethereum or litecoin. He’s optimistic that a bitcoin ETF will be approved as soon as this year.
“We wouldn’t file if we didn’t think it was possible. Our lawyers are too expensive. We’re optimistic, which is a long way from certainty,” Hougan says.
Some are skeptical 2019 will be the year for the bitcoin ETF. In early December, the SEC delayed making a decision on VanEk’s bitcoin ETF until Feb. 27. Guessing whether that’s a positive or negative development is as futile as trying to divine where bitcoin prices are headed.
Write to Crystal Kim at firstname.lastname@example.org