Crypto funds batting .000 against SEC

With more than 35 million customers, $21 billion in revenues and $3.8 trillion in discretionary managed assets, Fidelity Investments is one of the largest investment management companies in the world. It may need all its heft to break the losing streak of crypto-fund sponsors that have gone up against the United States Securities and Exchange Commission.

As reported, Fidelity filed with the SEC on March 24 a preliminary registration statement on behalf of its Wise Origin Bitcoin Trust — an exchange-traded fund that would track the performance of Bitcoin as measured by its Fidelity Bitcoin Index. This followed similar SEC filings this year from WisdomTree, CBOE/VanEck, NYDIG Asset Management, Valkyrie Digital Assets and SkyBridge Capital.

A Fidelity Bitcoin fund would be an event of some historic importance. According to Nik Bhatia, author of the book Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies and adjunct professor of finance and business economics at the University of Southern California, this would be bigger than Elon Musk buying $1.5 billion in Bitcoin (BTC) for Tesla’s corporate treasury, more significant than PayPal allowing its users to buy, sell and hold cryptocurrency, and greater than Coinbase’s upcoming initial public offering.

“It would bring the final stamp of legitimacy to Bitcoin,” Bhatia told Cointelegraph, and it could happen relatively soon. “I imagine that [CEO] Abby Johnson and Fidelity have filed, knowing they will get approved, and I now think it’s probably less than 12 months away.”

Nigel Green, founder and CEO of deVere Group — an independent financial advisory organization — told Cointelegraph, that if the SEC approves Fidelity’s BTC plans, it would mean “another major step into the mainstream for cryptocurrencies. It will also, inevitably, prompt more institutional investors into the already burgeoning cryptoverse.”

Not all are sure, though. “The Fidelity name is important, but it may not be big enough to overcome the other hurdles,” Georges Ugeux, adjunct lecturer in law at Columbia University Law School, told Cointelegraph. Among those hindrances are the crypto funds’ lack of diversification, illiquidity and, at least in the short term, the fact that the agency still doesn’t have a confirmed chairman.

Lennard Neo, head of research at Stack Funds — a crypto index fund provider — told Cointelegraph: “We have seen many ETFs being rejected by the SEC citing manipulation and market size as concerns.” Still, the cryptocurrency space has grown significantly over recent years and matured into an emerging new asset class. “If one keeps knocking on the door, it will eventually open.”

There are reasons, however, why approval of Bitcoin ETFs are unlikely in the immediate future, Michael Venuto, co-founder and chief investment officer of Toroso Investments, told Cointelegraph. “The SEC role is investor protection. Approving an ETF of Bitcoin could be seen as an endorsement that may run counter to more powerful forces within our government.” More clarity is still needed “at the federal, fiscal, tax and other regulatory levels” before the agency will approve a BTC fund, he said.

Concentration and liquidity concerns

Regulators are worried about, among other things, concentration risk — i.e., the possibility of “amplified losses” because holdings aren’t sufficiently diversified — a risk that may be particularly pronounced with a Bitcoin fund. In its S-1 filing, Fidelity itself acknowledged that:

“Unlike other funds that may invest in diversified assets, the Trust’s investment strategy is concentrated in a single asset within a single asset class. This concentration maximizes the degree of the Trust’s exposure to a variety of market risks associated with bitcoin and digital assets.”

With equity funds, the SEC doesn’t want any single stock to comprise more than 25% of an ETF’s basket size as measured by market capitalization, Ugeux told Cointelegraph. Bitcoin isn’t an equity, of course — it’s more like a commodity, at least according to the Commodity Futures Trading Commission and recent statements by senior SEC officials — but a Fidelity BTC would appear to really stretch the SEC’s concentration rules.

Another possible concern is liquidity, added Ugeux. ETF sponsors are supposed to be continuously purchasing and selling the fund’s underlying assets — to protect the sponsor so it isn’t holding too much itself — but here again, a Bitcoin fund can be problematic because its underlying assets are not (relatively) liquid securities.

Fidelity acknowledged in its filing its ability to sell Bitcoin could be affected by limited trading volume, lack of a market maker, or legal restrictions — indeed, a “governmental authority may suspend or restrict trading in Bitcoin altogether.” The filing added: “Bitcoin is a new asset with a very limited trading history. Therefore, the markets for bitcoin may be less liquid and more volatile than other markets for more established products.”

Still, these problems could be surmountable. “It seems a question of whennot ifthe SEC will approve a Bitcoin ETF,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA, in a public statement that he shared with Cointelegraph. Additionally, when approval does come, he said that:

“We expect multiple firms to receive the go ahead because the [regulatory] concerns were more with Bitcoin inside an ETF than anything specific to an individual proposal. Firms with an established ETF presence and broad distribution would have the advantages over others.”

As noted, some half dozen firms have filed with the U.S. SEC for crypto ETFs this year. Could any of them beat Fidelity to the punch, and if so, would they have anything close to the impact of a Fidelity ETF?

“I don’t think Fidelity has an advantage in getting approved,” Venuto told Cointelegraph. “The only one with a slight advantage is VanEck since they were the first of the current class to file for a 19b-4 rule change” — which made it easier to list ETFs.

Felix Shipkevich, an attorney specializing in cryptocurrency-related legal and regulatory matters at Shipkevich PLLC, told Cointelegraph: “All of the ETF Bitcoin applicants are game-changers” — i.e., not just Fidelity. Even with the regulatory ambiguity in the cryptocurrency space, “I have yet to see an ETF application from anything less than a first-tier financial services firm.”

Related: Bitcoin ETF may come to US, but not all crypto investors think it’s needed

Even if approval is eventually given, it may not happen so fast. Hester Peirce, a commissioner at the SEC and sometimes referred to as “Crypto Mom” for her support of cryptocurrencies, addressed the matter of ETFs in a recent speech, and “she did not give the impression that one [i.e., approval] would come through immediately,” said Ugeux. Approval(s) may take additional time, too, because Gary Gensler still hasn’t officially been confirmed as SEC chairman almost two months after his nomination, he added.

From Peirce’s speech, one might even conclude that the SEC had dug itself into a bit of a hole because it had delayed BTC fund approval for so long. Not only has the SEC’s “reluctance to permit traditional investment vehicles to hold Bitcoin or Bitcoin futures has contributed to investors seeking more expensive, less convenient, or less direct substitutes,” she said, “but it also has heightened the stakes of any regulatory approval for a mainstream retail product we might one day grant.”

The waiting has “magnified the first-approved advantage” for any Bitcoin ETF, and should the agency allow one now, investors might think the SEC is giving its “blessing” to that particular product — which would be the wrong inference to take, Peirce added.

Crypto cynics are “on the wrong side of history”

Whatever the circumstances — whether alone or as part of a group, whether sooner or later — “an ETF launched by one of the biggest mutual funds in the world definitely makes a statement,” said Neo regarding the Fidelity filing.

He continued: “It emphasizes the maturity and acceptance in Bitcoin” and would bring more institutional investors to the cryptoverse but also retail investors “with a low-cost, flexible alternative to efficiently diversify their portfolio into digital assets.”

“Staggeringly,” Green told Cointelegraph, “there are still some ‘experts’ who claim that digital currencies are not the future of money. The move by this investment giant to launch a Bitcoin ETF further underscores that cryptocurrency cynics are on the wrong side of history.”

Leave a Reply

Your email address will not be published. Required fields are marked *

bitcoin
Bitcoin (BTC) $ 37,589.00 4.77%
ethereum
Ethereum (ETH) $ 2,430.36 0.24%
tether
Tether (USDT) $ 1.01 1.52%
polkadot
Polkadot (DOT) $ 21.31 1.71%
cardano
Cardano (ADA) $ 1.49 1.08%
binance-coin
Binance Coin (BNB) $ 348.19 0.26%
xrp
XRP (XRP) $ 0.858277 2.16%
litecoin
Litecoin (LTC) $ 166.06 1.25%
chainlink
Chainlink (LINK) $ 22.00 0.31%
bitcoin-cash
Bitcoin Cash (BCH) $ 588.69 0.59%
stellar
Stellar (XLM) $ 0.333583 2.10%
usd-coin
USD Coin (USDC) $ 1.01 0.22%
dogecoin
Dogecoin (DOGE) $ 0.321425 1.61%
wrapped-bitcoin
Wrapped Bitcoin (WBTC) $ 37,485.00 4.45%
uniswap
Uniswap (UNI) $ 21.85 0.44%
aave
Aave (AAVE) $ 297.48 4.10%
cosmos
Cosmos (ATOM) $ 12.03 1.21%
monero
Monero (XMR) $ 254.87 1.96%
eos
EOS (EOS) $ 4.93 0.54%
bitcoin-sv
Bitcoin SV (BSV) $ 167.10 2.97%
tron
TRON (TRX) $ 0.069930 1.27%
nem
NEM (XEM) $ 0.163169 1.94%
iota
IOTA (MIOTA) $ 1.06 0.67%
vechain
VeChain (VET) $ 0.107765 0.95%
tezos
Tezos (XTZ) $ 3.20 0.28%
theta-token
Theta Network (THETA) $ 8.26 3.89%
havven
Synthetix Network Token (SNX) $ 8.70 0.77%
avalanche-2
Avalanche (AVAX) $ 14.52 7.62%
neo
NEO (NEO) $ 47.33 0.67%
terra-luna
Terra (LUNA) $ 5.85 0.31%
dash
Dash (DASH) $ 167.84 1.53%
huobi-token
Huobi Token (HT) $ 13.43 1.85%
okb
OKB (OKB) $ 13.66 2.30%
elrond-erd-2
Elrond (EGLD) $ 82.93 3.79%
crypto-com-chain
Crypto.com Coin (CRO) $ 0.118186 4.44%
the-graph
The Graph (GRT) $ 0.641360 5.17%
compound-ether
cETH (CETH) $ 48.44 0.01%
solana
Solana (SOL) $ 37.30 0.37%
maker
Maker (MKR) $ 3,021.21 1.49%
filecoin
Filecoin (FIL) $ 71.43 1.11%
cdai
cDAI (CDAI) $ 0.021578 0.06%
dai
Dai (DAI) $ 1.01 1.58%
ftx-token
FTX Token (FTT) $ 31.64 1.83%
celsius-degree-token
Celsius Network (CEL) $ 6.84 2.37%
sushi
Sushi (SUSHI) $ 8.24 1.62%
kusama
Kusama (KSM) $ 425.25 3.51%
compound-governance-token
Compound (COMP) $ 309.12 1.35%
zcash
Zcash (ZEC) $ 129.30 0.33%
ethereum-classic
Ethereum Classic (ETC) $ 56.98 1.75%
decred
Decred (DCR) $ 134.32 2.09%
binance-usd
Binance USD (BUSD) $ 1.01 0.68%
compound-usd-coin
cUSDC (CUSDC) $ 0.022357 1.03%
zilliqa
Zilliqa (ZIL) $ 0.100149 1.28%
uma
UMA (UMA) $ 11.54 0.26%
yearn-finance
yearn.finance (YFI) $ 37,363.00 0.41%
leo-token
LEO Token (LEO) $ 2.74 13.66%
pancakeswap-token
PancakeSwap (CAKE) $ 16.12 0.88%
waves
Waves (WAVES) $ 14.90 0.92%
near
Near (NEAR) $ 3.03 2.16%
amp-token
Amp (AMP) $ 0.056589 6.14%
0x
0x (ZRX) $ 0.851769 3.80%
huobi-btc
Huobi BTC (HBTC) $ 37,343.00 3.95%
algorand
Algorand (ALGO) $ 1.04 5.79%
digibyte
DigiByte (DGB) $ 0.055505 2.27%
icon
ICON (ICX) $ 0.912426 0.82%
hedera-hashgraph
Hedera Hashgraph (HBAR) $ 0.191240 0.79%
nexo
NEXO (NEXO) $ 1.93 0.82%
xsushi
xSUSHI (XSUSHI) $ 9.55 1.39%
ethos
Voyager Token (VGX) $ 2.36 5.11%
loopring
Loopring (LRC) $ 0.296723 0.85%
thorchain
THORChain (RUNE) $ 7.60 3.49%
ontology
Ontology (ONT) $ 0.912604 0.54%
renbtc
renBTC (RENBTC) $ 37,342.00 4.46%
nano
Nano (NANO) $ 6.45 3.08%
basic-attention-token
Basic Attention Token (BAT) $ 0.630551 0.79%
omisego
OMG Network (OMG) $ 4.73 0.30%
republic-protocol
REN (REN) $ 0.410301 2.21%
zencash
Horizen (ZEN) $ 81.81 0.19%
bittorrent-2
BitTorrent (BTT) $ 0.003473 0.85%
swissborg
SwissBorg (CHSB) $ 0.672148 4.77%
ravencoin
Ravencoin (RVN) $ 0.074092 4.14%
iostoken
IOST (IOST) $ 0.027657 2.03%
qtum
Qtum (QTUM) $ 8.82 0.74%
paxos-standard
Paxos Standard (PAX) $ 1.00 0.07%
venus
Venus (XVS) $ 24.18 4.31%
blockstack
Stacks (STX) $ 0.857977 1.39%
matic-network
Polygon (MATIC) $ 1.38 4.01%
curve-dao-token
Curve DAO Token (CRV) $ 2.18 1.45%
siacoin
Siacoin (SC) $ 0.015717 4.00%
quant-network
Quant (QNT) $ 55.73 5.79%
bancor
Bancor Network Token (BNT) $ 3.82 0.13%
reserve-rights-token
Reserve Rights Token (RSR) $ 0.028509 2.50%
fantom
Fantom (FTM) $ 0.253639 2.53%
mdex
Mdex (MDX) $ 1.94 1.35%
enjincoin
Enjin Coin (ENJ) $ 1.26 0.99%
energy-web-token
Energy Web Token (EWT) $ 7.80 2.35%
lisk
Lisk (LSK) $ 2.83 1.29%
ampleforth
Ampleforth (AMPL) $ 0.887626 6.07%
balancer
Balancer (BAL) $ 23.06 0.16%
terrausd
TerraUSD (UST) $ 1.01 0.65%
ocean-protocol
Ocean Protocol (OCEAN) $ 0.507217 3.96%
husd
HUSD (HUSD) $ 1.00 0.10%
nxm
Nexus Mutual (NXM) $ 92.51 0.15%
1inch
1inch (1INCH) $ 2.93 7.69%
bitcoin-gold
Bitcoin Gold (BTG) $ 58.31 0.86%
kyber-network
Kyber Network Crystal Legacy (KNCL) $ 1.69 1.08%
verge
Verge (XVG) $ 0.028589 6.87%
decentraland
Decentraland (MANA) $ 0.671134 0.43%
alpha-finance
Alpha Finance (ALPHA) $ 0.592192 0.82%
flow
Flow (FLOW) $ 11.81 1.20%
band-protocol
Band Protocol (BAND) $ 6.70 0.87%
status
Status (SNT) $ 0.069499 3.48%
dodo
DODO (DODO) $ 1.26 2.54%
bitcoin-cash-abc-2
Bitcoin Cash ABC (BCHA) $ 19.86 1.58%
compound-usdt
cUSDT (CUSDT) $ 0.021471 2.20%
xdce-crowd-sale
XDC Network (XDC) $ 0.050497 4.41%
staked-ether
Lido Staked Ether (STETH) $ 2,426.82 0.32%
arweave
Arweave (AR) $ 16.29 9.64%
polymath-network
Polymath Network (POLY) $ 0.215466 7.83%
safepal
SafePal (SFP) $ 0.981106 3.10%
true-usd
TrueUSD (TUSD) $ 1.01 0.18%
zkswap
ZKSwap (ZKS) $ 0.669921 1.81%
polkastarter
Polkastarter (POLS) $ 1.33 0.50%
ethlend
Aave [OLD] (LEND) $ 2.96 3.83%
helium
Helium (HNT) $ 12.80 0.12%
civic
Civic (CVC) $ 0.261624 0.49%
pundi-x
Pundi X [OLD] (NPXS) $ 0.001257 5.72%
kava
Kava.io (KAVA) $ 3.65 2.59%
golem
Golem (GLM) $ 0.275770 4.93%
harmony
Harmony (ONE) $ 0.079803 2.72%
nucypher
NuCypher (NU) $ 0.304589 5.85%
holotoken
Holo (HOT) $ 0.007639 2.34%
nusd
sUSD (SUSD) $ 1.01 0.37%
electroneum
Electroneum (ETN) $ 0.007512 3.30%
nervos-network
Nervos Network (CKB) $ 0.018310 3.07%
derivadao
DerivaDAO (DDX) $ 2.17 9.79%
district0x
district0x (DNT) $ 0.144155 0.34%
bitcoin-diamond
Bitcoin Diamond (BCD) $ 2.86 2.27%
trust-wallet-token
Trust Wallet Token (TWT) $ 0.361166 1.49%
rif-token
RSK Infrastructure Framework (RIF) $ 0.182659 1.47%
swipe
Swipe (SXP) $ 1.86 7.46%
gnosis
Gnosis (GNO) $ 175.04 1.90%
numeraire
Numeraire (NMR) $ 38.27 1.69%
rook
KeeperDAO (ROOK) $ 159.18 8.47%
kucoin-shares
KuCoin Token (KCS) $ 8.37 3.34%
btc-standard-hashrate-token
BTC Standard Hashrate Token (BTCST) $ 27.76 2.84%
aragon
Aragon (ANT) $ 4.46 3.76%
fetch-ai
Fetch.ai (FET) $ 0.274664 4.21%
litentry
Litentry (LIT) $ 3.28 1.59%
funfair
FUNToken (FUN) $ 0.020749 1.77%
chiliz
Chiliz (CHZ) $ 0.277129 3.52%
seth
sETH (SETH) $ 2,472.78 1.42%
oasis-network
Oasis Network (ROSE) $ 0.068177 1.37%
injective-protocol
Injective Protocol (INJ) $ 7.68 0.91%
vethor-token
VeThor Token (VTHO) $ 0.007825 2.56%
saffron-finance
saffron.finance (SFI) $ 412.21 0.15%
augur
Augur (REP) $ 18.36 2.08%
the-sandbox
The Sandbox (SAND) $ 0.268017 0.82%
singularitynet
SingularityNET (AGIX) $ 0.197438 6.58%
secret
Secret (SCRT) $ 1.32 0.69%
telcoin
Telcoin (TEL) $ 0.030249 2.87%
serum
Serum (SRM) $ 3.82 3.64%
gatechain-token
GateToken (GT) $ 3.91 1.44%
mainframe
Hifi Finance (MFT) $ 0.008518 4.09%
sbtc
sBTC (SBTC) $ 37,585.00 4.12%
compound-uniswap
cUNI (CUNI) $ 0.430908 0.60%
ardor
Ardor (ARDR) $ 0.166512 2.98%
vai
Vai (VAI) $ 0.908280 0.82%
utrust
UTRUST (UTK) $ 0.302265 4.13%
prometeus
Prometeus (PROM) $ 13.75 3.08%
reddcoin
Reddcoin (RDD) $ 0.002859 0.36%
monacoin
MonaCoin (MONA) $ 1.88 2.59%
noia-network
Syntropy (NOIA) $ 0.195192 1.37%
compound-0x
c0x (CZRX) $ 0.017486 3.16%
wink
WINkLink (WIN) $ 0.000443 1.98%
ankr
Ankr (ANKR) $ 0.084723 0.24%
bytom
Bytom (BTM) $ 0.076695 1.75%
rocket-pool
Rocket Pool (RPL) $ 11.03 6.96%
origintrail
OriginTrail (TRAC) $ 0.317108 0.12%
steem
Steem (STEEM) $ 0.446633 9.60%
maidsafecoin
MaidSafeCoin (MAID) $ 0.716347 4.31%
tomochain
TomoChain (TOMO) $ 1.54 4.76%
edgeware
Edgeware (EDG) $ 0.009903 3.89%
skale
SKALE (SKL) $ 0.296508 2.17%
stratis
Stratis (STRAX) $ 1.30 2.09%
hegic
Hegic (HEGIC) $ 0.104075 2.18%
komodo
Komodo (KMD) $ 1.11 2.46%
bitshares
BitShares (BTS) $ 0.048040 0.58%
unibright
Unibright (UBT) $ 1.04 3.10%
coinmetro
CoinMetro (XCM) $ 0.375811 6.51%
ark
Ark (ARK) $ 1.07 2.04%
mirror-protocol
Mirror Protocol (MIR) $ 3.71 1.22%
keep-network
Keep Network (KEEP) $ 0.422719 5.94%
neutrino
Neutrino USD (USDN) $ 1.01 0.39%
iexec-rlc
iExec RLC (RLC) $ 3.39 0.73%
harvest-finance
Harvest Finance (FARM) $ 57.85 4.93%
iotex
IoTeX (IOTX) $ 0.022721 0.31%
badger-dao
Badger DAO (BADGER) $ 12.70 2.42%
redfox-labs-2
RedFOX Labs (RFOX) $ 0.070434 0.10%
empty-set-dollar
Empty Set Dollar (ESD) $ 0.057475 4.44%
ultra
Ultra (UOS) $ 0.375376 0.09%
wanchain
Wanchain (WAN) $ 0.727820 1.51%
iris-network
IRISnet (IRIS) $ 0.079615 2.10%
perpetual-protocol
Perpetual Protocol (PERP) $ 8.19 5.20%
trustswap
Trustswap (SWAP) $ 0.990120 1.12%
tokenlon
Tokenlon (LON) $ 3.65 3.14%
orion-protocol
Orion Protocol (ORN) $ 7.18 3.00%
titanswap
TitanSwap (TITAN) $ 4.11 4.86%
tether-gold
Tether Gold (XAUT) $ 1,882.01 0.07%
wax
WAX (WAXP) $ 0.129267 10.45%
yfii-finance
DFI.money (YFII) $ 1,798.77 5.98%
aelf
aelf (ELF) $ 0.209232 0.48%
haven
Haven (XHV) $ 10.29 5.16%
pax-gold
PAX Gold (PAXG) $ 1,932.33 1.87%
defipulse-index
DeFiPulse Index (DPI) $ 308.83 2.89%
math
MATH (MATH) $ 1.41 0.07%
api3
API3 (API3) $ 3.29 21.92%
sora
Sora (XOR) $ 289.50 20.73%
dent
Dent (DENT) $ 0.003309 4.21%
loom-network
Loom Network (OLD) (LOOMOLD) $ 0.063851 11.45%
nftx
NFTX (NFTX) $ 53.97 0.47%
gala
Gala (GALA) $ 0.009330 3.02%
axie-infinity
Axie Infinity (AXS) $ 3.88 0.67%
beefy-finance
Beefy.Finance (BIFI) $ 1,141.05 2.12%
swingby
Swingby (SWINGBY) $ 0.105487 2.63%
parsiq
PARSIQ (PRQ) $ 0.683274 5.58%
akropolis
Akropolis (AKRO) $ 0.020698 0.79%
nest
Nest Protocol (NEST) $ 0.012196 8.14%
stakehound-staked-ether
StakeHound Staked Ether (STETH) $ 3,719.75 0.00%
akash-network
Akash Network (AKT) $ 3.07 3.59%
cream-2
Cream (CREAM) $ 163.51 18.16%
auto
Auto (AUTO) $ 1,063.90 0.29%
storj
Storj (STORJ) $ 0.926358 0.39%
e-radix
e-Radix (EXRD) $ 0.149734 6.32%
hive
Hive (HIVE) $ 0.367433 10.14%
chainx
ChainX (PCX) $ 6.63 12.39%
wrapped-nxm
Wrapped NXM (WNXM) $ 61.99 0.57%
hathor
Hathor (HTR) $ 0.455380 9.36%
gemini-dollar
Gemini Dollar (GUSD) $ 1.03 1.45%
frontier-token
Frontier (FRONT) $ 0.759513 0.90%
everid
Everest (ID) $ 0.372088 1.74%
lto-network
LTO Network (LTO) $ 0.248120 10.86%
power-ledger
Power Ledger (POWR) $ 0.203081 0.84%
livepeer
Livepeer (LPT) $ 26.58 2.82%
xdai-stake
xDAI Stake (STAKE) $ 9.51 25.88%
rari-governance-token
Rari Governance Token (RGT) $ 5.42 3.13%
cashaa
Cashaa (CAS) $ 0.028068 1.02%
energi
Energi (NRG) $ 1.95 2.84%
bytecoin
Bytecoin (BCN) $ 0.000459 1.84%
duckdaodime
DuckDaoDime (DDIM) $ 12.97 9.98%