Bitcoin-Based Futures ETF Hits Headwinds at SEC

Some people have felt that the Securities and Exchange Commission is delaying the approval of exchange-traded funds (ETFs) relating to Bitcoin (CCC:BTC-USD) and other cryptocurrencies.

Smartphone with Bitcoin chart on-screen among piles of Bitcoins
Source: Shutterstock

One report says that there are now 18 applications for Bitcoin and related ETFs on the SEC’s dockets.

Some firms are now trying to apply specifically for a futures fund that will have BTC exposure. Bitwise, a crypto fund, recently applied for a futures fund with the SEC, according to online magazine Decrypt.

The appeal of a futures contract relates to the SEC’s apparent view that “Bitcoin is a commodity, and commodity futures trading is required to take place on a futures exchange regulated and supervised by the CFTC.” The CFTC is the Commodity Futures Trading Commission.

Bitcoin and Futures

Meanwhile, Canada is one of the countries where investors can buy cryptocurrency through ETFs tied to physical Bitcoin. Some of the applications with the SEC indicate that they will purchase Canadian funds.

So, in effect, the futures ETFs will not be specifically buying a “commodity” like BTC on a non-regulated exchange and physically being in custody of a commodity. They will be investing in a contract, not a commodity.

A lot of the applications for futures ETFs came after the chairman of the SEC Gary Gensler made a speech before the Aspen Security Conference on Aug. 3. In the middle of his speech, he said this:

“I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded Bitcoin futures.”

Virtually everyone who heard or read that thought, oh, the SEC is open to reviewing futures ETFs. But not so fast. Since then, it appears that the SEC has been reviewing the futures contracts ETFs with the same lack of alacrity as it had with the regular ETF filing applications.

Apparently, the SEC still has concerns that Bitcoin and other cryptos are subject to fraud and volatility, according to CNBC. They may be looking to come out with regulations covering Bitcoin trading and crypto exchanges soon. That may be one reason why they have been holding up ETF applications. They know that once those regulations are out and finalized, the ETF applications may have to be amended.

What Should Investors Do?

There is absolutely nothing stopping regular investors from buying well-known cryptocurrencies like Bitcoin and Ethereum (CCC:ETH-USD) in most regular brokerage accounts. In addition, Bitcoin and Ethereum, as well as a good number of other cryptos, can be bought online with Coinbase (NASDAQ:COIN), which is the largest of several other crypto exchanges.

So why would anyone want to buy Bitcoin in an ETF? You should only buy an ETF is to get a smattering, a diversified group of similar grouped by one theme.

There are probably only a very few cryptos that the SEC would even consider allowing to be bought in a cryptocurrency ETF. And one centered only on Bitcoin sort of begs the question – why bother? Investing in Bitcoin is very easy for regular investors to do otherwise.

My View on ETFs

Of course, don’t listen to me, as I have consistently been very negative on the whole ETF industry in the first place. It is simply another tool for Wall Street to charge recurring fees on regular investors. Many ETFs are more easily duplicated in an investor’s portfolio much more cheaply.

Therefore, don’t hold your nose for the SEC approving a futures ETF anytime soon. Even if it does, most are better off with a long position in Bitcoin itself. That is better than taking a stake in a highly leveraged futures BTC futures contract vehicle.

On the date of publication, Mark R. Hake held a long position in Bitcoin and Ethereum but not in any other security (directly or indirectly) mentioned in the article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Mark Hake writes about personal finance on and runs the Total Yield Value Guide which you can review here.

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