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In spot bitcoin ETF race, some pioneers stick to the sidelines

Bitcoin coins are seen at a stand during the Bitcoin Conference 2023, in Miami Beach, Florida, U.S., May 19, 2023. REUTERS/Marco Bello/File Photo
Bitcoin coins are seen at a stand during the Bitcoin Conference 2023, in Miami Beach, Florida, U.S., May 19, 2023. REUTERS/Marco Bello/File Photo

In the spot bitcoin ETF race, some pioneers stick to the sidelines. Several cryptocurrency exchange-traded funds (ETFs) pioneers intend to avoid participating in what is anticipated to be a brutal industry struggle for market dominance. Despite the rising excitement that spot bitcoin exchange-traded funds (ETFs) may shortly receive regulatory clearance,

It is anticipated that the demand for a bitcoin exchange-traded fund (ETF), which would make it possible for regular and institutional investors to quickly place bets on the price of the largest cryptocurrency in the world, could attract as much as $3 billion from investors in the first few days of trading and will continue to attract billions more after that.

Nevertheless, several well-known companies in the blockchain and cryptocurrency industries, such as ProShares, Amplify Investments, and Roundhill, have, for the time being, refrained from creating a bitcoin exchange-traded fund (ETF). Specifically, they are concerned that the market is already oversaturated, that the expenses of marketing and regulation are costly, and that the demand will not be sufficient to compensate for these factors.

Their criticism shows that the enthusiasm around a spot bitcoin exchange-traded fund (ETF) may be misdirected and that the products may prove unprofitable for certain issuers racing into the area. Even though they are a tiny minority in a race in which both large and small participants are entering the fray, they are nevertheless a minority.

“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 aims to introduce cryptocurrency exchange-traded funds (ETFs) but does not intend to launch a spot bitcoin ETF.

“You have to weigh the odds that you’ll end up as one of the winners or an also-ran.”

For a long time, the Securities and Exchange Commission (SEC) has consistently rejected applications for spot bitcoin exchange-traded funds (ETFs) because they satisfy its investor protection criteria.

When BlackRock (BLK.N), a company that has an almost uninterrupted record of SEC ETF approvals, applied for a spot bitcoin ETF in June, the industry’s expectations that attitude would alter increased significantly. In August, a judge found that the Securities and Exchange Commission (SEC) had incorrectly denied Grayscale Investments’ application to convert its Bitcoin Trust (GBTC.PK) into a spot bitcoin exchange-traded fund (ETF) and that the SEC must now examine Grayscale’s submission.

SEC chair Gary Gensler stated that the agency’s commissioners will evaluate as many as ten bitcoin exchange-traded fund (ETF) submissions. Still, he could not give any information regarding the timing of these filings.

Despite this, Michael Sapir, CEO of ProShares, has stated that he is not sure that the SEC will accept a file shortly. As soon as it was introduced in 2021, the ProShares Bitcoin Strategy ETF, which was founded on bitcoin futures, became one of the most widely traded new exchange-traded funds (ETFs), bringing in a total of one billion dollars in its first few days of operation.

According to Sapir, ProShares also offers a suite of other cryptocurrency exchange-traded funds (ETFs) related to futures contracts. These ETFs provide clients with choices that eliminate the requirement for a spot ETF.

EXPENSES UPFRONT
Whenever the SEC decides to approve a bitcoin exchange-traded fund (ETF), executives anticipate that it will do so simultaneously, ensuring that no one has a first-mover advantage.

This would result in an increase in marketing expenses, one of the most significant costs associated with introducing an ETF. In addition to legal representation fees, filing with the SEC, and listing, the price for establishing even a primary exchange-traded fund (ETF) is estimated to be around $100,000 by attorneys. This can reach millions of dollars if the product is complicated, and obtaining approval from the SEC takes significant time.

Roxanna Islam, associate director of research at VettaFi, a data provider, stated that having the resources and skills to file for something that does not yet exist in the United States is expensive.

Last week, Ark Investment announced that its spot bitcoin exchange-traded fund (ETF) will carry a fee of 0.8%. Ark Investment is the only potential issuer to reveal proposed investor costs thus far.

“This appears to be strategically priced to attract assets,” said Aisha Hunt, a fund lawyer at Kelley Hunt LLC. “Rather than to cover upfront costs,” she added.

Certainly, issuers planning to establish spot bitcoin exchange-traded funds (ETFs) have a more optimistic perspective than those remaining on the sidelines. With the ability to cross-subsidize expenses and the marketing scale to reach millions of potential consumers, some of the largest ETF providers, such as BlackRock and Invesco, can cross-subsidize costs.

Some exchange-traded fund (ETF) providers, such as Amplify, who are not among the top twenty or so providers, are uncertain about whether or not they could secure a substantial market share to make the economic argument work.

“It will be a game-changer in terms of demand and crypto’s evolution into an asset class, but that does not mean we would be able to benefit directly,” said Christian Magoon, founder and CEO of Amplify ETFs. Magoon’s Amplify Transformational Data Sharing ETF invests in Bitcoin miners and other crypto businesses. Magoon’s statement emphasizes that the company would not be able to benefit from the event immediately.

Amplify and Roundhill stated that they would instead concentrate on alternative chances for bitcoin exchange-traded funds.

In the previous month, Roundhill applied to the SEC to create an exchange-traded fund (ETF) to earn income and exposure to Bitcoin through Bitcoin-linked options. According to Mazza, he seems confident that the device might make its debut as early as January.

Amplify’s BLOK ETF hopes to attract additional assets due to the hype around a spot bitcoin exchange-traded fund (ETF). This fund, which has a total value of $472 million, contains investments in cryptocurrency firms such as Coinbase (COIN.O) and CME Group (CME.O), the exchange where cryptocurrency futures are traded.

The euphoria has caused some individuals to lose sight of the more excellent picture, according to Tom Staudt, chief operating officer of Ark Investments, whose spot bitcoin ETF file is scheduled for a decision from the SEC in January. It is expected that the judgment will be made in January.

Investors will find solutions to some of their most pressing issues. However, it will not fix all of the challenges,” Staudt added, pointing out that Ark just introduced five exchange-traded funds (ETFs) that provide a variety of techniques for investing in cryptocurrencies. “The future is about more than just spot bitcoin,” he said.

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