Published: April 13th, 2022
A survey of US financial advisors conducted by Nasdaq has found that 74 per cent would be more inclined to invest their clients’ assets in cryptocurrencies if a spot ETF instrument were on the table.
Only 39 per cent of those surveyed, however, said they believed the US Securities and Exchange Commission (SEC) would approve a spot ETF this year. Almost as many, 30 per cent, were more emphatic, saying the thought it ‘unlikely’ the SEC would say yes to a spot crypto ETF product in 2022.
The blend of enthusiasm and skepticism swirling around spot crypto ETFs hasn’t held financial advisors back from using other mechanisms to extend crypto exposure in their portfolios.
In a statement accompanying the research, Nasdaq said that the majority of advisors polled had plans to start allocating to crypto or increase their current crypto allocations. ‘With demand continuing to surge, advisors will be on the hunt for an institutional solution to the crypto question now dominating client discussions.’
Nasdaq polled 500 advisors in February 2022 who cumulatively manage USD 25 trillion on behalf of clients.
No advisor with crypto in their portfolio said they planned to reduce it this year. Close to 87 per cent said they planned to increase their crypto allocations.
Only 40per cent were thinking of investing in individual coins, however 70 per cent said they would consider buying into an index fund for wider crypto exposure.
While investors continue to press the SEC to green light a spot market Bitcoin ETF, the SEC has said yes to a fourth Bitcoin futures ETF.
Approval was granted last week (wc 4th April) to the Teucrium Bitcoin Futures Fund, a Vermont-based firm in the agri-commodities space. In the past it has only offered futures products that track the price of staples like wheat, corn, and soybeans.
The buzz around a possible spot Bitcoin ETF kicked off again last week when the SEC approved the Teucrium bid. Why the renewed enthusiasm? Unlike previous crypto futures ETFs, the application for this one was submitted under America’s Securities Act of 1933.
In the past, the SEC has maintained that the 1933 act doesn’t offer investors enough protection from fraud and systemic risk, a key reason for denying previous spot ETF applications. With a futures Bitcoin ETF approved under the act, the SEC may be signaling a change in attitude.
An exchange-traded fund or ETF wraps a bundle of securities like stocks and commodities together to amortize risk. Investors can purchase shares of an ETF and gain exposure to the securities bundled withing, but without the risk of holding them directly. In the case of crypto ETFs, two main categories are in contention: crypto futures and crypto spot.
Crypto futures are derivative contracts based on the price of the underlying coin. A crypto spot price refers to its current price.
Teucrium is the fourth Bitcoin futures fund to gain approval, coming after the Valkyrie (BTF), Proshares (BITO), and VanEck (XBTF) funds which all started trading in Q4 of 2021.
‘We are excited that our filing has been approved by the SEC. More information about the fund will be released in the coming weeks,’ Teucrium said in a statement.
As the three previous Bitcoin futures ETFs have seen price drops since their debut, this latest fund might have generated with less attention. However, the three earlier funds gained approval under the 1940 Investment Company Act, which the SEC says brings strong investor protections. Since Teucrium’s ETF was approved under the Securities Act of 1933, markets have taken notice, particularly as it marks a first for the SEC.
In an investor bulletin last Summer the SEC said that funds regulated under the 1940 act benefitted from vital investor protections, with specific rules regarding liquidity, custody, and valuation of fund assets. None of these is covered under the 1933 act.
The ARK 21Shares Bitcoin ETF application, for example, was was filed under the 1933 act and denied in late March. The NYDIG and VanEck spot Bitcoin ETF applications took a similar route and both met the same fate.
With a Bitcoin futures ETF gaining approval under the weaker 1933 act, an argument can now be made that its protections are strong enough for a crypto spot ETF to flourish.
Picking up on this theme, Grayscale CEO Michael Sonnenshein told Bloomberg that the firm is considering a lawsuit against the SEC to have its Grayscale Bitcoin Trust (GBTC) changed into a spot Bitcoin ETF.
The agency ‘can’t use the 1940 Act anymore to justify its applications denials,’ he said. Whether the SEC will agree remains to be seen.
America’s inaugural bitcoin futures ETF launched in October 2021 with hungry investors gobbling up USD 280 million in shares in the first 20 minutes alone. By the time markets closed, shares in the new instrument had racked up close to USD 1 billion in trading volume.
The ProShares’ Bitcoin Strategy ETF (BITO) began its life on the New York Stock Exchange (NYSE) after receiving SEC approval the previous Friday (15th October). Investors looking for indirect exposure to the leading crypto began buying shares tied to BTC’s future price, which lifted to USD 42.15 at one stage, a 5.3 per cent increase from its starting net asset value of USD 40. BITO shares finished their opening session at USD 41.93, a same-day boost of 4.84 per cent.
Volume trading came close to breaking a record. While BITO didn’t reach the USD 1 billion mark, it came close. Bloomberg said USD 994 million in BITO shares changed hand on the 19th. Only one ETF in US history has managed to reach USD 1 billion on its opening day, BlackRock’s Carbon Transition Readiness ETF, which launched in April 2021.