Yesterday the first and long-awaited Bitcoin ETF began trading on the New York Stock Exchange much to the enjoyment of the crypto community. After months and really years of being kicked down the road or flat out turned down the first Bitcoin tracking ETF launched and it did so almost perfectly in my opinion.
Consumer finance groups and progressive lawmakers have decried this development as they claim it sucks money out of the "real" economy and enables gambling under the SEC banner. I have to admit I myself was pretty surprised by this development as just a few weeks ago SEC Chair Gary Gensler described the underlying market as the "Wild West". This statement and then what has happened are opposites of what I would have expected.
Contrary to what some people think is that the ETF that has launched and other ETFs awaiting launch is that they are not/do not hold any bitcoin and are tired to the price of Bitcoin futures contracts. This is a lot more of a speculative risk due to the nature of future contracts just betting on how the future of the product will do. For whatever reason, the SEC appears to be okay for this type of ETF but not one that actually is backed by Bitcoin funds itself. This is the type of ETF the very popular Grayscale Bitcoin Trust will transition into.
Chair Gensler has also come after Congress and really the Federal Government as a whole for their lack of regulation and investor protections. The one agency that has been pretty active in policing the Bitcoin market would be the Commodity Futures Trading Commission (CFTC) how has fined companies and their products. A recent example of this is the $42.5 million Bittrex and Tether recently faced.
Now the lack of SEC action does not necessarily mean much. When a product is applying to be launched the SEC can only prevent it by intervening and stopping the application. If it does not intervene, as it has currently chosen to do, the fund is able to move forward over a set review period which tends to run about 75 days for the agency to further look into it.
The futures aspect of this shows that the SEC still is a little hesitant about letting funds backed by Bitcoin be traded. An issue I could see this traditional product type running into is that Bitcoin and crypto overall are a 24/7 market. Cryptocurrency is still having to shake the manipulation, integrity, and stability issues that have faced it due to issues over the years. While a lot of progress has been made addressing these concerns still remain that hopefully will be hammered out over the next few years.
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