SEC launches boost to U.S. investors with ‘lite’ bitcoin stock ETFs

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Two “lite” bitcoin stock ETFs have started trading in the United States and a third has been approved by the Securities and Exchange Commission as the regulator calls for investors to call for a genuine bitcoin ETF.

The SEC has so far refused to approve any exchange-traded fund that invests in the cryptocurrency itself, although many asset managers have requested to do so and similar vehicles are already operational in Sweden. , Switzerland, Jersey, Germany and Canada.

There is growing speculation that it will approve one or more bitcoin futures ETFs following encouraging comments from Gary Gensler, chairman of the SEC. However, this is unlikely to be imminent, as the regulator has pushed back by 45 days the deadlines for its decisions on a quartet of futures ETFs, offered by Global X, Valkyrie, WisdomTree and Kryptoin, with the deadline for the former now set. . 21 November.

The Grayscale Bitcoin Trust, a private trust, has reached $ 35 billion since its launch in 2013, indicating the appetite for cryptocurrency in the United States.

Net flows across all cryptocurrency funds hit a four-year high of more than $ 2.5 billion last week, according to EPFR, a data provider.

Invesco attempted to partially fill the ETF void by launching the Invesco Alerian Galaxy Crypto Economy ETF (SATO – in homage to Satoshi Nakamoto, the mysterious computer programmer who created bitcoin) and Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC), both of which started trading this week.

The funds invest at least 80% of their assets in companies that are “materially” engaged in activities such as cryptocurrency mining, trading and infrastructure, as well as in private OTC investment funds. free of charge related to crypto. BLKC also owns companies involved in blockchain development.

The PowerShares Cayman Fund is by far the larger of the two, followed by Bigg Digital Assets, which develops software to track, trace and monitor cryptocurrency transactions.

The SEC gave the green light to a third crypto equity ETF this week, the Volt Crypto Industry Revolution and Tech ETF (BTCR), which will invest in “entities that either hold the majority of their net assets in bitcoin or derive the majority. of their income. bitcoin mining, lending or transaction ”.

The funds are following in the footsteps of VanEck Digital Transformation ETF (DAPP) and Bitwise Crypto Industry Innovators (BITQ), which invest in stocks related to digital assets – like MicroStrategy, a software company that says it holds $ 5 billion in bitcoin on its balance sheet, and Coinbase, a cryptocurrency exchange – and the Amplify Transformational Data Sharing (BLOK) ETF, which owns a portfolio of companies involved in the development and use of blockchain technologies.

Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research, believes some of the new vehicles have merit.

“In the longer term, as cryptocurrency becomes more widely used, there is an ecosystem of businesses that can benefit from it,” he said.

“It is still very early for bitcoin and blockchain technologies. There is a future for these companies, but since this is still an early stage investment, it is not clear who will be the winners and the losers. A diversified ETF is therefore a great way to gain exposure to the trend as opposed to individual stocks.

The latest approvals come despite considerable concern within the SEC over the infrastructure that underpins the crypto market.

On Tuesday, Gensler described crypto finance as the “Wild West or the old world of ‘buyer beware'” that existed before the passage of securities laws.

“This asset class is rife with frauds, scams and abuse in certain applications. We can do better, ”he told the House Financial Services Committee.

The comments reflected a broader pullback by the SEC against riskier ETFs, with Gensler warning earlier in the week that leveraged funds pose a risk to financial market stability, as he called for enforcement. stricter rules for these complex vehicles.

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