By Landon Manning
French regulators have approved asset manager Melanion Capital to begin offering a bitcoin-tied exchange-traded fund (ETF) in the European Union. Though this asset does not have full correlation to the price of the world’s number one cryptocurrency, its wide international market and 90%+ correlation marks major progress for investors’ ability to gain bitcoin exposure.
The struggle to create a legal, regulator-approved Bitcoin ETF has been a major ongoing development for years now. An ETF is a type of derivative that has its own value set to correspond with the value of some outside tangible or intangible asset, such as gold bullion or the growth in stocks of a specific private firm. The mechanisms of keeping this valuation on target can be a challenge, with slight fluctuations from the actual value to be expected, but complicated systems of arbitrage exist for most ETFs so that the asset managers can respond to changes in the financial world with speed and precision.
The creation of an ETF with its value tracked to bitcoin has already seen success in several nations, for example, firms based in Brazil and Canada have launched their own Bitcoin ETFs in 202, with billions of dollars already flowing into these intriguing new investment opportunities. And yet, despite the amount that the U.S. crypto community has already worked for and salivated over these possibilities over a multi-year period, as of August 2021 U.S. regulators have continued to stonewall the proceedings, often with little information provided.
Although the U.S. market continues to languish without a Bitcoin ETF, the launch of Melanion’s product is a major milestone for one of the world’s largest cryptocurrency markets: the European Union. On August 4, news hit the Financial Times about Melanion Capital’s latest attempt to hit this target, using the model of Ucits. A financial model created 30 years ago with high investor protections, Ucits currently forms the bulk of European mutual funds and are a well-trusted tool for investors.
However, “most pipes of the traditional financial system stop at access to bitcoin,” said Jad Comair, Melanion’s CEO, per the Times. “The ETF was a real challenge because of the sensibilities and politics currently surrounding bitcoin and bitcoin investing.”
For these reasons, this new ETF does not have any direct contact with bitcoin, but instead its complicated system of arbitrage used to manage the fund’s price is entangled with dozens of related stocks, in such industries as bitcoin mining, blockchain technology, fintech research and other points in the wider sphere of cryptocurrency. Using these different levers to move the ETF, Melanion is confident in its ability to steer its price to at least 90% accuracy as a faithful representation of bitcoin’s true value.
In another bombshell for the cryptocurrency scene, it came to light shortly thereafter that EU regulators had approved this plan quickly, and that this Bitcoin ETF will hit the stock exchanges of Paris featuring the coveted Ucits stamp of approval. Customers all over the European Union will be able to engage with this new asset, and know that it comes bearing a true pedigree of regulatory approval.
The success of this ETF in the months and years to come could provide the start of a new age for the world’s leading cryptocurrency. This model of tracking bitcoin indirectly, through a wide selection of crypto-related businesses, could provide a model that will finally allow the American market to begin something similar. With notoriously stringent agencies worldwide coming up with new ways to safely offer their customers some very real access to the world of Bitcoin, one can only imagine how much longer U.S. regulators will continue to drag their feet before finally agreeing to bet on a model that works. Regardless, Melanion Capital’s successes with this new fund will be a real point of interest for ongoing regulation efforts, and it could very well become the straw that breaks the camel’s back.
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