Cryptocurrency ETF possible launch ahead of U.S. spot Bitcoin fund

Author: Ben Strack, blockworks Compiler: Shan Ouba, Jinse Finance

It seems more likely that other cryptocurrency funds will begin trading in the near future, as the U.S. Securities and Exchange Commission (SEC) is considering a series of spot Bitcoin ETFs.

These ETFs include those that hold ether futures contracts, as well as those that have offered Bitcoin futures products on the market since 2021.

While many industry observers await an SEC ruling on planned spot Bitcoin funds from BlackRock, Fidelity and others, the regulator said last week it needed more time to consider seven such proposals. This was reflected in an August 11 filing, in which the SEC said it may take at least another 45 days to consider spot Bitcoin ETFs from Ark Invest and 21Shares.

The deadline for the SEC to finalize its decision on the proposed Ark 21Shares Bitcoin ETF is January 10. It will have until March to make a decision on most other products beyond those that Global X plans to launch.

After Grayscale Investments won its lawsuit against the SEC last week, Bloomberg Intelligence analysts said they increased the chances of a Bitcoin ETF launching in 2023 to 75% from 65%. They put the chance of this Bitcoin product hitting the market at 95% by the end of 2024.

However, despite not holding Bitcoin directly, other cryptocurrency ETFs appear to have a clearer path to launch, possibly starting as early as October.

Ethereum Futures ETF

The first Ethereum futures ETF may launch next month, two years after the launch of the first Bitcoin futures ETFs.

Volatility Shares submitted an application for a fund that will hold ether futures contracts on July 28. Subsequently, other issuers followed suit, such as Grayscale Investments, Bitwise and ProShares.

The proposals come after several companies quickly halted related plans. The SEC asked them to drop those efforts, the sources said.

Two people familiar with the latest Ethereum futures ETF application told Blockworks in August that the SEC had indicated it was ready to publicly consider such a fund. Bloomberg reported later that month that the SEC was unlikely to block the products from going public, according to people familiar with the matter.

The regulator declined to comment for this story.

In an August 4 filing, fund group Valkyrie proposed changing its Bitcoin futures ETF to one that also holds ether futures—a change that could take effect around October 3 if not blocked by the SEC.

A few days later, Bitwise, which adopts a similar strategy to Valkyrie, proposed converting its Bitcoin Strategy Optimum Roll ETF (BITC) into the Bitwise Bitcoin and Ethereum Equal Weight Strategy ETF. The fund will also hold both bitcoin and ether futures, with the filing stating that the fund could go into effect on October 9.

Volatility Shares said last month it planned to launch its Ether Strategy ETF (ETHU) on October 12.

“Volatility Shares successfully launched its first Bitcoin-linked ETF (BITX) in July and believes ETHU is the next logical step for us before moving to the spot market,” said Stuart Barton, chief investment officer at the firm said in a statement.

Matt Hougan, Bitwise chief investment officer, told CoinDeskTV in August that he expected a decision on an ethereum futures ETF before deciding on a spot bitcoin ETF.

“I know people think the SEC has been negative about (cryptocurrency) ETFs,” he added. "Realistically, progress on the ETF side has been slow. But now that regulatory quandary is breaking down, and I think that's very exciting for investors."

Other Cryptocurrency Funds Coming Soon

Ark Invest and 21Shares are waiting to see if their proposed spot Bitcoin ETF is approved, as well as whether the fund they plan to invest in ether futures will be approved.

However, these firms are also sub-advisers to the products that have been applied for and these products appear to be inevitable and uncontroversial as they incorporate elements of already approved funds. After an application is submitted on August 11, the proposed fund will take effect 75 days later, on October 25.

All three funds will hold Bitcoin futures contracts or ETFs, one of which will combine these investments with stakes in companies in the blockchain, digital asset and fintech industries.

Meanwhile, Global X plans to launch a so-called Bitcoin Trend Strategy ETF, which will “systematically and dynamically allocate” Bitcoin futures contracts and the Global CLIP). The proposal is scheduled to take effect 75 days after submission, which is scheduled for around October 3.

Bryan Armour, director of passive strategies at Morningstar, told Blockworks in July that the SEC may not approve a spot bitcoin ETF for a long time.

He also said: “Global X therefore appears to be offering something for investors who love Bitcoin to add to their portfolios during this time.”