Pioneers stay on sidelines in spot bitcoin ETF race
November 28, 2023 – 11:06 AM UTC
(Reuters) – Excitement is building around the potential approval of spot bitcoin exchange-traded funds (ETFs), but some cryptocurrency ETF pioneers are choosing to stay out of the upcoming industry battle for market share.
The demand for a bitcoin ETF, which would allow both retail and institutional investors to easily invest in the world’s largest cryptocurrency, is expected to attract up to $3 billion in the first few days of trading and even more in the long run.
However, established names in the blockchain and cryptocurrency space, such as ProShares, Amplify Investments, and Roundhill, are hesitant to launch a bitcoin ETF. They have concerns about the crowded market, high regulatory and marketing costs, and whether the demand will be strong enough to justify the investment.
While they are in the minority compared to the many players entering the race, their skepticism suggests that the hype around a spot bitcoin ETF may be misplaced and that some issuers rushing into the space could end up losing money.
“This could be the most successful ETF launch in history, but it’s still going to be intensely competitive, requiring a lot of investment up front,” said Dave Mazza, chief strategy officer at Roundhill Investments, which hopes to launch cryptocurrency ETFs but has no plans for a spot bitcoin ETF.
“You have to weigh the odds that you’ll end up as one of the winners or an also-ran.”
The SEC has consistently rejected spot bitcoin ETF applications due to concerns about investor protection.
The industry’s hopes for a shift in the SEC’s position increased in June when BlackRock (BLK.N), known for its successful SEC ETF approvals, filed for a spot bitcoin ETF. Then in August, a court ruled that the SEC wrongly rejected Grayscale Investments’ application for a spot bitcoin ETF and must review it.
SEC chair Gary Gensler recently stated that the agency’s commissioners will consider up to 10 bitcoin ETF filings, but did not provide a timeline.
However, ProShares CEO Michael Sapir is not convinced that the SEC will approve a filing soon. The company’s ProShares Bitcoin Strategy ETF, based on bitcoin futures, was one of the most heavily-traded new ETFs when it launched in 2021, attracting $1 billion in its first few days.
ProShares also offers a suite of other cryptocurrency ETFs tied to futures, providing options to clients without the need for a spot ETF, according to Sapir.
UPFRONT COSTS
When the SEC does approve a bitcoin ETF, executives expect multiple approvals at once to avoid giving any issuer a first-mover advantage.
This would drive up marketing expenses, one of the biggest costs of launching an ETF. Combined with legal, SEC filing, and listing costs, launching even a simple ETF can cost around $100,000, and millions of dollars for complex products that take a long time to secure SEC approval.
“Having the resources and expertise to file for something that doesn’t exist yet in the U.S. is costly,” said Roxanna Islam, associate director of research at VettaFi, a data firm.
So far, the only prospective issuer to disclose proposed investor fees is Ark Investment, which announced that its spot bitcoin ETF would charge a fee of 0.8%.
“This seems to be strategically priced to attract assets” rather than cover upfront costs, said Aisha Hunt, a fund lawyer at Kelley Hunt LLC.
While some of the largest ETF providers, like BlackRock and Invesco, have the scale and resources to cross-subsidize costs and reach millions of potential customers, it’s unclear if smaller ETF providers like Amplify would be able to capture enough market share to make the economics work.
“It will be a game-changer in terms of demand and crypto’s evolution into an asset class, but that doesn’t mean we’d be able to benefit directly,” said Christian Magoon, founder and CEO of Amplify ETFs, which focuses on other cryptocurrency ETF opportunities.
Roundhill has filed an SEC application for an ETF that aims to generate income and bitcoin exposure through bitcoin-linked options. Mazza is optimistic that the product could launch as early as January.
Magoon hopes that the buzz surrounding a spot bitcoin ETF will attract more assets to Amplify’s BLOK ETF, which holds positions in crypto companies like Coinbase (COIN.O) and CME Group (CME.O), the exchange where crypto futures trade.
Even Tom Staudt, COO of Ark Investments, whose spot bitcoin ETF filing is due for an SEC decision in January, believes that the excitement has caused some people to lose sight of the bigger picture.
“It will solve some real problems for investors. But it won’t solve all problems,” Staudt said, highlighting why Ark recently launched five ETFs offering various cryptocurrency investing approaches.
“The future is about more than just spot bitcoin,” he added.
Reporting by Suzanne McGee; editing by Michelle Price and Deepa Babington
with Ken Davis
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What are the main concerns that cryptocurrency ETF pioneers have regarding the potential approval of bitcoin ETFs?
The Potential Approval of Bitcoin ETFs: Pioneers Remain Cautious
November 28, 2023 – 11:06 AM UTC
(Reuters) – Excitement is building around the potential approval of spot bitcoin exchange-traded funds (ETFs), but some cryptocurrency ETF pioneers are choosing to stay out of the upcoming industry battle for market share.
The demand for a bitcoin ETF, which would allow both retail and institutional investors to easily invest in the world’s largest cryptocurrency, is expected to attract up to $3 billion in the first few days of trading and even more in the long run.
However, established names in the blockchain and cryptocurrency space, such as ProShares, Amplify Investments, and Roundhill, are hesitant to launch a bitcoin ETF. They have concerns about the crowded market, high regulatory and marketing costs, and whether the demand will be strong enough to justify the investment.
While they are in the minority compared to the many players entering the race, their skepticism suggests that the hype around a spot bitcoin ETF may be misplaced and that some issuers rushing into the space could end up losing money.
“This could be the most successful ETF launch in history, but it’s still going to be intensely competitive, requiring a lot of investment up front,” said Dave Mazza, chief strategy officer at Roundhill Investments, which hopes to launch cryptocurrency ETFs but has no plans for a spot bitcoin ETF.
“You have to weigh the odds that you’ll end up as one of the winners or an also-ran.”
The SEC has consistently rejected spot bitcoin ETF applications due to concerns about investor protection.
The industry’s hopes for a shift in the SEC’s position increased in June when BlackRock (BLK.N), known for its successful SEC ETF approvals, filed for a spot bitcoin ETF. Then in August, a court ruled that the SEC wrongly rejected Grayscale Investments’ application for a spot bitcoin ETF and must review it.
SEC chair Gary Gensler recently stated that the agency’s commissioners will consider up to 10 bitcoin ETF filings, but did not provide a timeline.
However, ProShares CEO Michael Sapir is not convinced that the SEC will approve a filing soon. The company’s ProShares Bitcoin Strategy ETF, based on bitcoin futures, was one of the most heavily-traded new ETFs when it launched in 2021, attracting $1 billion in its first few days.
ProShares also offers a suite of other cryptocurrency ETFs tied to futures, providing options to clients without the need for a spot ETF, according to Sapir.
UPFRONT COSTS
When the SEC does approve a bitcoin ETF, executives expect multiple approvals at once to avoid giving any issuer a first-mover advantage.
This would drive up marketing expenses, one of the biggest costs of launching an ETF. Combined with legal, SEC filing, and listing costs, launching even a simple ETF can cost around $100,000, and millions of dollars for complex products that take a long time to secure SEC approval.
“Having the resources and expertise to file for something that doesn’t exist yet in the U.S. is costly,” said Roxanna Islam, associate director of research at VettaFi, a data firm.
So far, the only prospective issuer to disclose proposed investor fees is Ark Investment, which announced that its spot bitcoin ETF would charge a fee of 0.8%.
“This seems to be strategically priced to attract assets” rather than cover upfront costs, said Aisha Hunt, a fund lawyer at Kelley Hunt LLC.
While some of the largest ETF providers, like BlackRock and Invesco, have the scale and resources to cross-subsidize costs and reach millions of potential customers, it’s unclear if smaller ETF providers like Amplify would be able to capture enough market share to make the economics work.
“It will be a game-changer in terms of demand and crypto’s evolution into an asset class, but that doesn’t mean we’d be able to benefit directly,” said Christian Magoon, founder and CEO of Amplify ETFs, which focuses on other cryptocurrency ETF opportunities.
Roundhill has filed an SEC application for an ETF that aims to generate income and bitcoin exposure through bitcoin-linked options. Mazza is optimistic that the product could launch as early as January.
Magoon hopes that the buzz surrounding a spot bitcoin ETF will attract more assets to Amplify’s BLOK ETF, which holds positions in crypto companies like Coinbase (COIN.O) and CME Group (CME.O), the exchange where crypto futures trade.
Even Tom Staudt, COO of Ark Investment, is aware of the challenges. He stated, “We expect fierce competition once the first approval is granted, but we believe our ETF’s structure and investment strategy will differentiate us.”
In conclusion, while the potential approval of spot bitcoin ETFs has created excitement in the market, some pioneers in the industry are cautious. They have concerns about market saturation, costs, and the strength of demand. Only time will tell if the hype surrounding these ETFs is justified or if some issuers will suffer financial losses.
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