Why A Bitcoin ETF May Not Be Coming Any Time Soon

Tyler Durden's picture

When it comes to the future of bitcoin, the "holy grail" has emerged as becoming the first to have a bitcoin ETF approved by the SEC.

Over three years ago, in 2013, the company of the Winklevoss twins, Cameron and Tyler, Winklevoss Capital Management LLC, launched the first proposed bitcoin ETF, the Winklevoss Investment Trust, looking to trade on the HFT-dominated BATS exchange. The SEC is expected to make a decision on it by March. A second group, SolidX Partners followed last July seeking SEC approval for its bitcoin ETF, SolidX Bitcoin Trust, which also would be listed on the NYSE.

Then on Friday, Grayscale Investments, a unit of Barry Silbert’s Digital Currency Group filed with the SEC to list its own Bitcoin Investment Trust on the New York Stock Exchange: as with the previous two attempts, the fund hopes to get SEC approval to expand the audience for the virtual currency. Initially, the trust will seek to launch with $500 million, the filing said, though the target is subject to change. At Dec. 31, it had about 1.8 million shares outstanding. Based on a net asset value of $89.39 a share, its assets under management totaled $164.2 million.

As the WSJ notes, "Grayscale's Bitcoin Investment Trust, first launched in 2013, already trades on OTC Markets Group Inc.’s over-the-counter exchange, OTCQX. With the new filing if approved, the trust would operate as a traditional ETF, meaning that specialized traders would create and retire shares based on demand."

Two Wall Street firms, KCG Holdings Inc. and Wedbush Securities Inc., are in discussions to serve as authorized participants, according to the filing. Additionally, the fund’s trustee will be Delaware Trust Co., and the transfer agent will be Bank of New York Mellon Corp., based on the filing.

The goal of a bitcoin-based ETF is to offer an product that would be easier for investors to access and would mute at least some of bitcoin’s volatility, although it would hardly eliminate all of it, which would still make it a riskier investment than most other ETFs.

More importantly, approval "could prove an early test for how an SEC run by a Donald Trump appointee will greet innovations that may raise investor-protection or other market-structure issues." Furthermore, the benefits of being first on a major exchange could be big, assuming that bitcoin does manage to establish itself as a viable asset class. The SPDR Gold Shares ETF launched Nov. 18, 2004, has $31 billion in assets. The iShares Gold Trust ETF launched Jan. 21, 2005, has $7.7 billion in assets. Gold, a commodity not backed by any particular government, appeals to investors for some of the same reasons as bitcoin... even if many physical hard-core "gold-stacker" fans mock both the concept of a paper gold representing their physical holdings, while relentlessly ridiculing the idea that "digital money" contained in a server somewhere, is in any way safe (following recent dramatic breaches of a Chinese bitcoin exchange, they have a point).

Earlier this month, Needham analyst Spencer Bogart wrote that “it appears there is significant pent-up demand from the investment public for such a vehicle" although he conceded that "the probability of one being approved in 2017 was very low, expecting the SEC could be cautious about such a risky asset."

Indeed, as one of the lawyers who helped craft the application for what would be the first-ever bitcoin exchange-traded fund (ETF) told Coindesk, he is doubtful the SEC will approve such a request any time in the near future. The critique, courtesy of former Gemini general counsel David Brill, is particularly relevant as his old employer's last and final deadline to receive approval for the experimental product is on 11th March.

Though Brill is quick to point out he is a “proponent” of the creation of bitcoin ETFs and pro-bitcoin regulation more broadly, the prognosis does not bode well for its success. In conversation with CoinDesk, Brill explained that he believes factors such as China's impact on the price of bitcoin make an approval unlikely.

Specifically, he said that "It seems unlikely, among all the other reasons, that the commission is going to want to move forward with a product where the major trading is done on an exchanges that may not be following our AML guidelines." In other words, China's domination of bitcoin trading - as much as 98% of recent bitcoin transactions took place in China - would likely force the SEC to deny any of the bitcoin ETF applications.

Blame China: "a career lawyer for 20 years, Brill worked at Thompson Financial from 2003 through 2010, when it acquired Reuters. Prior to departing Gemini last year, Brill worked as the New York-based exchange's general council, where he said he helped create the legal infrastructure of the exchange and craft a number of responses to amendments to its S1 filing."

Though Brill does believe that that a bitcoin ETF will eventually be allowed to do business on a major stock exchange, he said the SEC will be unlikely to do so while as much as 95% of all bitcoin transactions are carried out in China.


That, coupled with the China government’s recent crackdown on cryptocurrency exchanges and anti-money laundering practices, makes for an even less likely approval, he said.

"It's more that the overwhelming majority of trading is not being done in the US, and being done in an area where the rules and regulations are not consistent with the rules here," said Brill.

According to Brill, one of the big hopes for further acceptance and advancement of bitcoin is none other than Donald Trump. Speaking shortly before Donald Trump’s inauguration as President, Brill said he is "cautiously optimistic about a more promising environment for bitcoin companies in the future."

From a strictly local business perspective, he predicted Trump would likely take a pro-bitcoin stance. However, considering concerns about a possible "trade war" with China following Trump’s expected policies, Brill said the predominance of bitcoin trading in the nation could be a hindrance.  He concluded: "I want to try to see what approaches might work to make it easier for bitcoin companies to expand across the US. Because right now, it is extremely difficult because every state has something different that they want."

Ultimately, bitcoin investors may have to make do without a bitcoin ETF for a while, especially if as some suspect, not only Chinese traders, but local HFTs have taken over trading of the extremely volatile product. Still, that may be a good thing: failing to get ETF approval will simply keep bitcoin extremely volatile, which is also why it has become the darling asset of a subset of traders starved for volatility in a world where central banks have eliminated virtually any daily gyrations from the equity class. As such, we would expect bitcoin vol to only grow, not decline, in the process making the attainment of the bitcoin "holy grail" that much more improbable.

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debtor of last resort's picture

Leveraged bits & bytes. Like mining the crofts at 33L.

How about a $20t physical bitcoin huh? To back some shit. Fucking losers.

bamawatson's picture

was a relatively early adopter of bitcoin, through friends in georgia tech masters program. studied the satosha papers. the concept is sound & functional. in an ideal theoretic universe, bitcoin is fantastic in that it does instantly transcend borders, among other positive attributes.
problem is, darn near any 'system' is fine during good times; and when the government allows citizen freedom. my issue --- for which is there is no answer ---- is, as a practical matter bitcoin is useless when the internet is down. citizens do not control the internet. effectively your 'money' can only be used if .gov consents.
also my second issue is i believe bitcoin is a honeypot, they can confiscate at their leisure, no different then when they let dope dealers accumulate significant assets and then confiscate.

Escrava Isaura's picture

Why A Bitcoin ETF May Not Be Coming Any Time Soon

Because Bitcoin is fake enough by itself. Align it with another fake financial instrument will arise too many eyebrows.


CPL's picture

You mean like gold?

I understand there was a lot of tungsten in the previous shipment and it's why you are all 'lying around now'.

The Saint's picture
The Saint (not verified) xythras Jan 22, 2017 12:04 AM

There is nothing backing a bitcoin.  It is a worthless asset.  Like a share of stock with a bankrupt company that has zero value.  Of course, the SEC will never allow a bitcoin ETF.  You would see an ETF that only buys bankrupt - out of business penny stocks first.


CPL's picture

lol...the Soro's Paid for Estrogen march.  Sucks to be them.

kochevnik's picture

You are an expert in fake, with your free shiyte economics.  Do you drive a Fiat?

800409523's picture

You guys still don't get it, please can you name one thing that is scarce that doesn't have value? There are only ever going to be 21m bitcoin.

If you really think that we will ever return to a new fiat currency backed by gold once all the trust has been broken you have another thing coming. That saying "fool me once..." comes to mind. 

As a technology professional, this is the most unbelievable technical inventions of my life time. 

It is an asset based currency not a debt based currency.

If you really think that the world is going to go backwards and we are going to shop online with silver coins that just ludicrous.

There is waaaay more more risk of your gold being confiscated than your bitcoins. 


MANvsMACHINE's picture

If scarcity is the only condition that has to be met for something to have value, then liberal brain tissue is quite valuable.

bluez's picture

If scarcity is the only condition that has to be met for something to have value, then conservative brain tissue is quite valuable.

bluez's picture

What about shitcoins? Plentiful, yet you certainly cannot "do" without them!

manofthenorth's picture

I think your take on BC is apt. As a currency it is impeded by not being universally adopted and accepted. I looked into Fonestar's favorite "localbitcoins". I wanted to buy 1 bitcoin for cash or trade some metal. Problem was that since I live in Alaska there was no one to trade with. Not ONE SINGLE registered user in the entire state. There was a guy in Prince Rupert B.C. but I was not going to travel 700 miles to do the transaction. I suppose I will just watch the evolution without having any skin in the game.

misterb4096's picture

LocalBitcoins has an escrow system, as well as user ratings similar to Ebay. You can find a reputable trader anywhere in the US (possibly me or fonestar, both on LocalBitcoins) and deposit the cash into their checking account, at which point your coins will be released to you. No ID of any kind is required.

manofthenorth's picture

I am a big fan of peer to peer trading. With Ebay if you do not make good on a transaction they will cover the refund cost if the deal goes bad. Who covers a deal gone bad on LocalBitcoin transactions ????

misterb4096's picture

The sites moderators and escrow system. If you can provide proof (say a photo of the deposit slip) then your Bitcoin will be released to you even if the seller tries to scam you.

booboo's picture

BitCon ETF, Smoke meets mirror

Abitcoinbrain's picture

Here is the really really really important point.... Pandora's Box is open is open my friend, Money flows via  path of least resistance just like electricity! Decentrilized Internet, Decentrilized Money, Decentrilized POWER. 

bamawatson's picture

that is correct, and a primary attraction why i was an early adopter BUT it is also why .gov will freeze it when they want to.
it simply will not be allowed to survive. .gov lets it live now because it is an info Treasure Trove

kochevnik's picture

Which world government?  The one in your head?

bamawatson's picture

did not say world gov
said .gov
dont get personal hoss
grow up

your air can be stolen
your method of transaction can be instantly shut down
you are at the mercy of the net
all movement is recorded for time immemorial


kochevnik's picture

You English natives conjure up imaginary things with your adjective "the."  There is no "the government"  Only many governments.  No goverment can shut down bitcoin.  Nuking Earth back to the stone age can interfere with access to a collective hash table, but many have copies on local hard drives.  Basically you would need a Deathstar to blow up Earth into atoms.  At that point, you may have larger issues than BTC

kochevnik's picture

Cannot confiscate if you do not have the hash, Mr. BTC expert

nomofiat's picture

Shutting down the internet is like shutting down the world. If that happens you don't need money, you need guns and ammo.

How do you figure that they can confiscate at their leisure? How will you confiscate an alphanumeric code or 12 random words?


Yog Soggoth's picture

I agree, and would like to add that an ETF is just a piece of paper that could[?] be backed by something, thus compounding the risk. Let us all not forget about the fees for the ETF and where that money would go. Winklevoss twins were dumb enough to let Zuckerberg into thier dorm room, otherwise they would own Facebook.Those down votes are probably from the digital trolls. We will see more digital trolls on this site. They are the same idiots who keep the grocery lines slow by swiping and re swiping, talking about it to the cashier like they are the first person all day that does this and getting another card out, and forget they actually have a five dollar bill right next to all those worn out pieces of plastic.

CPL's picture

Otherway around.  There are only 21 million ounces of currency grade Gold in existence.  There are 21 million bitcoins in total.  Your gold can't make spare change and cannot be authenticated as geniune (tungsten).  Bitcoin can make change to nine decimal places, has a unique finger print that can be used as an inventory system for the gold and be transferred anywhere.  You shipping gold as a mechanism of currency transfer?  Laughable.  Anyone trusting any of you?  Foolish.

Escrava Isaura's picture

Convenience aside, post collapse Bitcoin will be worth zero. Local currencies, such as BerkShares, is the future.




misterb4096's picture

You dopes don't seem to get that the internet will not go down forever. I keep some junk silver and a big stack of $20's for a grid down scenario, and I keep even more bitcoin for the future.

813kml's picture

You BTC dopes don't realize that you will forever be trading BTCs between a small circle of nerds who have deluded themselves into thinking that a sequence of 256 bits is actually worth something.

They're Magic: The Gathering cards taken to the next level of pathetic.

bamawatson's picture

any .gov can shut down bitcoin instantly while leaving the rest of the net up; the only question is when

stacking12321's picture


At best, gov can shut down bitcoin use inside its borders, and that would be a huge effort with little benefit.

But even if it happened, I walk across the border into tijuana and use it there.

Yog Soggoth's picture

So if you lived in Key west how many miles would you have to travel? And then would you even know how to get to a reputable place for exchange and hotel in Tijuana? Is there some kind of secret map and insurance plan for this particular investmen/gamble?

Escrava Isaura's picture

Being in a self-reliant community will be your best bet post financial collapse, because of all kind of shortages everyone will face.   

Post societal collapse, nothing (gold, Bitcoin, silver, money) will matter, but you’ll be better off in a self-reliant community.


kochevnik's picture

Currency is needed to exchange goods with strangers.  You make bold., but baseless proclamations like a child

CPL's picture

And you will not be able to make change with a bar of gold nor validate it's authenicity.  BerkShares is a derivative branch of BitCoin...or didn't you know that?  The largest crypto coin in use for real trade that is most active after BitCoin is MazaCoin.  The first nations lakota bitcoin iniative that is in motion already is going cut out the fiat regime of inter-reserve trade that will go coast to coast in about a year. 

However that a side, what happens in Brazil isn't a concern long term to local north american concerns.  We both know why.  One is down, the last two are out of toner in a couple of months.  Your sponsors and proxies are hobbling around on fried drumsticks and none of you know how to transition anything.  That's okay though, that's how the cuts always happen each transition.  The dumb ones are weeded out.  The test is to see if you are sapient...not sentient.

The central planners's picture

Another problem with Btc is how the regular people will transact when the blockchain grow exponentialy let say by the terabytes in size? 

misterb4096's picture

You don't need to download the blockchain to transact bitcoin, duh!

The central planners's picture

Well that means you are trusting someone else to do the transaction thats even worst.

Global Douche's picture

The 21 M BTC total won't be realized until 2140. Mined BTC is just over 16M now. That makes existing coins more worthy. Also, consider the coins which are lost, orphaned due to lost wallets which were not backed up, losing those Private Keys.

misterb4096's picture

Who the fuck said we (bitcoiners) wanted an ETF? This is good news, like if gold ETF's suddenly became nonexistent, that would be good for gold bugs and lake bottoms.

GoinFawr's picture

+1 this whole article is based on a false premise

carbonmutant's picture

The probably should have sold it as a Blockchain ETF...

misterb4096's picture

Sadly, that probably would have worked.

Bay of Pigs's picture

Great idea. Much like the make believe precious metal ETF's like GLD and SLV with "custodians" like HSBC and JPM running them.

Global Douche's picture

And Ted says JPM has 500M Oz of Ag in their vault. If true, I expect one hell of a short squeeze when no more Phyzz can be delivered.


Cognitive Dissonance's picture

Just keep on stacking.


Silver Savior's picture

Yep. Stack only the real. And you know what that is.

Silver Savior's picture

Bit coin is already fake. So now they want to make a paper claim on top of a digital claim?  Go ahead. Manipulate it's true value downward as close to zero as possible.