The bitcoin rally that followed investment giant BlackRock’s application for a spot market exchange-traded fund is still ongoing. With the launch of the first ETF on Bitcoin leveraged futures, hopes are growing that a spot ETF will follow next.
For many investors, BlackRock’s success could herald a new phase in institutional investor participation in Bitcoin, especially if it opens the door for other investors to follow Bitcoin.
In an interview with Decrypt, Justin Young, co-founder and president of Volatility Shares, said that investors looking to gain exposure to Bitcoin are looking for the “easiest, most regulated way” to invest in Bitcoin. Because of this, he said the spot ETF might be the most effective way to do this.
“As for the ETF issuers that are filing these applications,” Young told Decrypt. “It’s like the crème de la crème for investors.”
Since BlackRock applied for a spot ETF on June 15, bitcoin price has hit its highest level in over a year. Its application was followed by others including Fidelity, Valkyrie and Invesco. While the hype is high, it’s met with criticism from an exchange regulator that has capsized previous ETF applicants looking to get exposure to bitcoin spot markets over concerns about the risks there.
That doesn’t mean the SEC is totally against ETFs that touch Bitcoin, though. On June 23, the regulator granted permission to operate to Volatility Shares, the first bitcoin ETF dedicated to leveraged futures. It joins a number of ETFs that make trades in bitcoin futures, which may contribute to on-the-spot approval, Young said.
Young said he’s not sure his ETF’s approval paves the way for one in the bitcoin spot market, but hinted that it has raised hopes that the possibility of approval is imminent.
“I think it gets a lot of people’s attention thinking, if the SEC let through a leveraged bitcoin-related product, why on earth wouldn’t they let spot bitcoin through?” Young told Decrypt.
An ETF combines securities such as stocks and commodities. Investors can buy shares of an ETF to gain exposure to those securities without actually owning them. There are two main types of bitcoin ETFs: bitcoin futures and bitcoin spot.
Since 2013, when the Winklevoss twins first applied for a Bitcoin ETF, the SEC has blocked every application for spot market trades. In its denials, the SEC said the filings failed to demonstrate how they would protect investors from risks related to fraud or market manipulation.
However, Young says the concerns raised by the SEC are “very valid,” adding that a spot ETF would go a long way in addressing those concerns.
On the one hand, he said that an ETF that operates on the spot market with the approval of regulators should be viewed as a safer investment. It’s no secret that the SEC has issues with many of the largest crypto exchanges, even claiming some are trading with unregistered entities.
“Obviously there has been a lot of press about the downsides of some of these crypto exchanges and the legality of some of the ones that are currently in existence,” Young said. “By putting bitcoin in an ETF format, you solve a lot of these problems.”
The other reason, Young said, is that an ETF can help bring more stability to the bitcoin markets. The uncertain legal status of bitcoin and other cryptocurrencies contributes to how volatile their prices can be, a volatility that the SEC has described as worrisome in notices to prospective investors.
However, Young claims that approving a regulated spot ETF in Bitcoin could help “dampen” volatility and attract more investors eager to get involved in more transparent financial products.
“I think the biggest benefit of this spot ETF and market is that you create more stability and less volatility, which the SEC doesn’t like,” Young said.