CBOE Global Markets Inc. could well become the first company to win approval for a bitcoin ETF, but whether that coveted accomplishment materializes remains to be seen.
For his part, Chris Concannon, CBOE’s president and CEO, said that he is optimistic that the Securities and Exchange Commission will grant his wish, but he recognizes that there are challenges remaining, according to Bloomberg.
The SEC last week postponed acting on a proposal to allow such a fund from SolidXPartners Inc. and VanEck Associates Corp. to list on CBOE, underscoring the commission’s wariness of a bitcoin ETF. The commission had previously rejected an ETF proposal from Cameron and Tyler Winklevoss, owners of the Gemini Trust Co. cryptocurrency exchange, as well as an earlier solo proposal from SolidXPartners Inc.
The vigilance reflects the SEC’s concern about possible manipulation in the largely unregulated cryptocurrency market.
CBOE and fellow Chicago exchange CME Group Inc. both began offering bitcoin futures contracts in December, the first significant bitcoin entries into mainstream finance. Such futures are traded in regulated markets and could provide the foundation for an ETF instead of the cryptocurrency itself.
CBOE Addresses SEC Concerns
CBOE’s ETF filing emphasized that it will only invest in bitcoin for the benefit of investors, facilitating over-the-counter trades among accredited market investors and insuring the funds that are invested in bitcoin. The SEC had previously voiced concern about insufficient insurance for cryptocurrency investors.
Concannon said the futures provide a more mature and healthier market, but a futures-based ETF raises the question of what is the correct liquidity level since such a product has not yet been tested.
Bitcoin futures trading volumes have not matched the levels of commodities like oil or gold. But waiting for additional liquidity to introduce an ETF poses a dilemma. While the ETF would raise the level of futures trading, the SEC is reluctant to approve the ETF if there is not sufficient liquidity in its underlying futures.
Other players, meanwhile, are moving ahead with proposals. The New York Stock Exchange plans to offer a physically-settled cryptocurrency futures contract this year.
First ETF Expected To Lead The Market
Concannon said having the first bitcoin ETF would be a market advantage. Once an ETF is approved, the inflow of capital will continue, based on the precedent set by other ETFs.
Whether Concannon’s hopes are borne out remains to be seen. The futures contracts were introduced at a time when bitcoin’s price was skyrocketing, leading some to believe that the Wall Street community was welcoming digital assets and an ETF would be the next step. CBOE and CME bitcoin futures trading, however, did not increase to the levels that many expected, and the bitcoin price has taken a sharp downturn in 2018.
Concannon admitted that publicity has outpaced trading volume, noting that the size of the cryptocurrency market is one-fifth that of Apple.
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