With New Regulatory Developments, Bitcoin ETFs Could Be Closer Than Ever

A pile of Bitcoins
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By Landon Manning

With the U.S. Securities and Exchange Commission (SEC) issuing new approvals for financial instruments indirectly tied to Bitcoin (BTC), the world of cryptocurrency is abuzz with the possibility of an approved, U.S.-based Bitcoin exchange-traded fund (ETF) hitting the consumer market.

The notion of a Bitcoin ETF has been a discussion point in the community for years now, with the SEC consistently moving to either delay or outright reject attempts to create a legally-tradable version of this product. In essence, an ETF is a type of fund deriving its value from the assets it holds, that can be traded directly on the stock market, taking full advantage of the possibility for gains in addition to the ease-of-use from indirect trading of assets. Although there are a variety of complicated financial interests either directly or indirectly tied to the price of Bitcoin, the threshold of a Bitcoin ETF has still yet to be crossed. 

The ETF offers several advantages over a number of other similar investment products: they are often optimized for tax efficiency, they can be traded over a much wider range of time in the day, and the structure often ensures a greater degree of transparency than can be expected on the stock market, alongside other benefits. In short, in addition to a number of direct upgrades compared to the existing Bitcoin-backed financial instruments, ETFs also bear a stamp of legitimacy that helps their circulation and accessibility. 

In October 2021, the SEC announced its approval of a new “Volt Crypto Revolution and Tech ETF,” which, according to its prospectus, is set to track several “Bitcoin Industry Revolution Companies.” These companies include several different types of connections to Bitcoin, with some, for example, having most of their assets invested in Bitcoin or being directly involved with the production of Bitcoin-related equipment. Additionally, a portion of this fund would be derived from more traditional stocks. Although there have been a variety of various financial instruments carrying out this type of investment, the official approval of this ETF has been seen by many as an important benchmark in regulatory adoption.

In addition to approving this latest Bitcoin-related ETF, the SEC pushed back four other decisions around products that could offer much more direct exposure to Bitcoin. These funds would hold a variety of Bitcoin futures, rather than the stocks of companies tied to bitcoin, thus allowing the aggregate of different futures to mimic the exact price movements of Bitcoin much more closely. These are all being filed under the 1940 Investment Company Act, which SEC Chairman Gary Gensler has previously endorsed as a likely route to the Bitcoin ETF.

Despite reported skepticism about the SEC’s willingness to integrate Bitcoin more fully into the market for investments in the U.S., it is worth noting that if the scheduled decisions should take place later in October, and if the SEC gives these projects the green light, several different ETFs of the same basic structure will be able to hit the ground running

In such a scenario, it will be just days before these products are in reach for millions of customers, and adding a new layer of financial accessibility to the lives of common Americans. The struggle for an SEC-approved Bitcoin ETF has been waged by the community for years now, and an approval above and beyond the old threshold will give us all the opportunity to see what benefits they can really offer.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.