Many crypto ETFs proposed in the US don’t make it to launch.
The SEC has for years blocked planned ETFs that would invest in bitcoin directly, and some industry watchers have said they don’t expect the regulator to allow one anytime soon.
Though the quest for spot bitcoin ETFs continues, firms have resorted to offering funds holding the equities of crypto- and blockchain-related companies, or bitcoin futures contracts.
Three crypto-related ETFs — the Valkyrie Bitcoin Miners ETF (WGMI), the VanEck Digital Transformation ETF (DAPP) and the Bitwise Crypto Industry Innovators ETF (BITQ) — have year-to-date returns of more than 100% as of Friday, putting them among the top 10 highest performers for all ETFs, according to data from ETF Database.
The largest blockchain ETF, Amplify’s Transformational Data Sharing ETF (BLOK), has returned roughly 30% so far in 2023 — performance that ranks 59th best.
But those are products already trading. In the absence of spot bitcoin ETFs, fund groups continue to innovate new strategies.
Leveraged bitcoin futures ETFs
Several leveraged bitcoin futures funds are currently being considered for launch, though their fates remain uncertain.
Volatility Shares plans to launch its 2x Bitcoin Strategy ETF (BITX) on June 13, the company said in a Tuesday statement. The firm declined to comment further.
Though the first bitcoin futures ETFs launched in October 2021, BITX looks to be the first US-based ETF to offer leveraged long exposure to the cryptocurrency futures market, according to the company.
The proposed fund seeks investment results that correspond to two times the excess return of the S&P CME Bitcoin Futures Daily Roll Index for a single day.
Other issuers have filed for similar funds.
ProShares, which was first to market with a bitcoin futures ETF, filed for its Ultra Bitcoin Strategy ETF on April 6 — about a week after Volatility Shares’ filing.
“As a matter of policy, we don’t comment on regulatory matters,” a ProShares spokesperson told Blockworks.
Fund group Direxion followed suit by filing for its Daily Bitcoin Strategy Bull 2X Shares on April 11. Valkyrie more recently revealed plans on May 15 to launch a Bitcoin Futures Leveraged Strategy ETF.
Valkyrie had filed for a fund in October 2021 that would have provided 1.25x exposure to the bitcoin reference rate and hold futures, swaps, options and forwards. It withdrew the application a few days later. A source familiar with the matter told Blockworks at the time that the SEC had asked Valkyrie to pull the filing.
A Valkyrie spokesperson declined to comment on its Bitcoin Futures Leveraged Strategy ETF filing.
Dave Nadig, a financial futurist at data firm VettaFi, said he expects the SEC to lose its case against Grayscale Investments. He believes that this could spur the securities regulator to halt all US-listed crypto futures products. Some have said they expect a decision in that case during the third quarter of this year.
He added that he is “unconvinced” the proposed leveraged bitcoin futures ETFs will ever make it to launch.
“If in fact they do, I suspect they’ll be short lived and only used in the most narrow of retail use cases,” Nadig told Blockworks.
Other proposed funds
NEOS, a firm focused on options-based income ETFs, filed earlier this month to launch a Bitcoin High Income ETF and a Bitcoin Quantitative Trend ETF.
The actively managed High Income ETF would employ a bitcoin futures call options strategy, while the other seeks to “capture the positive momentum of the price of Bitcoin while aiming to minimize downside risk through the use of cash and cash alternative products.”
The latter ETF would hold bitcoin futures contracts, US government securities and money market funds, as well as short duration fixed income and cash alternative ETFs.
NEOS proposed that these funds become effective 60 days after filing in mid-May.
The same week as NEOS’s filings, Grayscale filed for a Global Bitcoin Composite ETF — a fund that would hold ETPs backed by physical bitcoin, as well as bitcoin mining companies. A separate Grayscale Privacy ETF would invest in companies developing blockchain-based privacy solutions.
The crypto-focused asset manager had also shared plans to launch an ether futures ETF before amending its filing to exclude that proposal. Bitwise, Direxion and Valkyrie withdrew their applications for similar funds, as sources told Blockworks the SEC had asked the firms to do so.
Lara Crigger, VettaFi’s editor-in-chief, previously told Blockworks she didn’t expect the SEC to allow the Global Bitcoin Composite ETF, noting the Privacy ETF has a better chance of launching.
Bloomberg Intelligence analyst James Seyffart said in a tweet earlier this month he believes the SEC would have to approve the Global Bitcoin Composite ETF after permitting bitcoin futures ETFs — due to that market being federally regulated.
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