Bitcoin exchange-traded funds are dead in the water. At least that was the general sentiment at the InsideETFs conference in January when Dalia Blass, director of the investment management division at the Securities and Exchange Commission, wrote a letter laying out concerns around the cryptocurrency vehicles. Blass invited interested parties to “engage” with the SEC on the key issues of liquidity, valuation, and custody.
On Friday, Cboe Global Markets (CBOE) responded, arguing the case for bitcoin ETFs. “Cboe does not believe [cryptocurrency-related holdings] are so much different as to warrant disparate treatment from other commodity-related funds,” its letter states.
“While the current bitcoin futures trading volumes on Cboe Futures Exchange and CME may not currently be sufficient to support ETPs seeking 100% long or short exposure to bitcoin, Cboe expects these volumes to continue to grow,” wrote the company, which operates the first exchange to list bitcoin futures. Volumes could even reach levels comparable to other commodity futures products, it said.
Goldman Sachs has argued that bitcoin and its ilk are better described as “cryptocommodities” rather than “cryptocurrencies,” but noted the difference between bitcoin and gold futures. “Bitcoin spot trading still takes place among a highly segmented investor base and on many different spot exchanges. With no large institutions operating across exchanges, there is likely an insufficient scale of arbitrage to drive spreads out of the market,” wrote Jeff Currie, head of Goldman’s global commodities research, in a report published last month.
In the same note, Steve Strongin, head of Goldman Sachs Global Investment Research, said that while bitcoin futures contracts have legitimized crypto to an extent, there are “numerous examples of failed futures contracts.”
Perhaps that’s what Cboe’s letter really is about—ensuring their investment in crypto derivatives wasn’t all for naught, because futures volumes will indeed pick up if ETFs that hold those futures contracts get the green light from regulators. But the letter is not a sign that a bitcoin ETF is on the way. Not even close. So for the near term, it looks like Bitcoin Investment Trust (GBTC) will continue to trade at a premium to its net asset value—and still charge an enormous 2% fee.
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