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The Current State of the Bitcoin ETF Race

WisdomTree becomes the 4th entrant into the competition to get the first bitcoin ETF approval.

Back in 2018, the race to launch the first bitcoin ETF was even hotter than it is not. At its peak, more than two dozen filings were made with the SEC for products based on either actual bitcoin or bitcoin futures contracts.

Bitcoin ETFs

Bitcoin ETFs

The launch of bitcoin futures contracts were thought to be the thing that made the approval of a bitcoin ETF inevitable. After all, there are already dozens of ETFs out there using derivatives contracts as their underlying security. If it works for oil and other commodities, why wouldn't it work for bitcoin?

But the SEC still said no. Their issue is with cryptocurrency itself, not the ETF structure. Given the SEC's stance, most potential issuers withdrew their bitcoin ETF applications and the issue lay dormant up until recently (note: the graphic above isn't up-to-date; it's a snapshot of where things stood as of a specific date in 2018).

The Current State Of Bitcoin ETFs Filings

The bitcoin ETF market is no longer silent.

With bitcoin hovering around $60,000, Elon Musk pushing coins and NFTs all the rage, some ETF issuers figure now might be the time to take another swing. The Biden administration has put some pro-crypto people in the White House and that could be the one thing that puts a bitcoin ETF approval over the top.

We all know how important the first mover advantage is. The first ETF to get approved likely draws in the lion's share of flows (and the inflows into a bitcoin ETF figure to be significant). How the SEC would choose to handle the current outstanding bitcoin ETF applications could be curious: do they approve them on a "first in, first out" basis or all at once? Either way, it appears that at least one may finally be approved as early as this year.

Yes, it's worth noting that the Grayscale Bitcoin Trust (GBTC) already exists as does the freshly launched Osprey Bitcoin Trust (OBTC), but it's important to realize that these are trusts, not ETFs. As such, they end up trading more like closed-end funds than ETFs and often trade at premiums to the NAV of the underlying security. This has especially been the case for GBTC, which at points in the past traded for as much as twice the value of bitcoin. Interestingly, GBTC is now trading at a discount for the first time in its existence, an indication that investors could anticipating that a bitcoin ETF will be approved soon.

Here is the current list of outstanding bitcoin ETF applications in the order in which they were filed.

VanEck Bitcoin Trust

You might be asking why the VanEck Bitcoin Trust would qualify as an ETF, while the Grayscale or Osprey Bitcoin Trusts would not.

GBTC and OBTC trade over-the-counter, whereas VanEck would, if approved, trade on the CBOE. As Investopedia explains, these products avoid SEC approval by structuring themselves in a specific manner.

GBTC is traded publicly on the over-the-counter market, under the Alternative Reporting Standard for companies not required to register with the Securities and Exchange Commission (SEC). Its success mirrors that of Bitcoin because its value is derived solely from that cryptocurrency.

The structural differenes, lack of SEC oversight and absence of an organized "exchange" is what differentiates the products.

VanEck was one of the original bitcoin ETF applications, but withdrew it back in late 2019. According to the filing, the trust will hold bitcoin and value its shares daily based on the MVIS CryptoCompare Bitcoin Benchmark Rate, which represents the price of bitcoin on the top five bitcoin exchanges.

Valkyrie Bitcoin Fund

Valkyrie's application is substantially similar to that of VanEck's in that it will hold bitcoin and price the fund according to the CME CF Bitcoin Reference Rate. The index price would be published between 4:00PM and 4:30PM giving it a set timeframe in which the price is locked in.

Valkyrie made its original application in January of this year.

NYDIG Bitcoin ETF

NYDIG's offering is a little different than the others mentioned thus far in that it doesn't track an index at all. According to the filing, it will "generally value bitcoin by reference to orderly transactions in the principal active market for bitcoin". I suspect that going non-index over index creates little if any notable difference in the pricing of bitcoin and will essentially be a non-consideration.

The NYDIG ETF notes that it plans on charging a 0.50% expense ratio for the fund.

WisdomTree Bitcoin Trust

The application for this ETF was filed just a week ago as the 4th entrant into the current race.

This is far from WisdomTree's first venture into cryptocurrency funds. It already operates the WisdomTree Bitcoin ETP on the Swiss Stock Exchange. The company also applied last year for the WisdomTree Enhanced Commodity Strategy ETF, which could hold up to 5% of assets in bitcoin futures contracts.

The current filing would also list on the CBOE.

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