Some Cryptocurrency ETF Pioneers Remain Skeptical
Despite the anticipation surrounding the approval of spot bitcoin exchange-traded funds (ETFs), some established names in the blockchain and cryptocurrency industry are opting out of launching a bitcoin ETF. Companies like ProShares, Amplify Investments, and Roundhill are concerned about the crowded market, high regulatory and marketing costs, and potential lack of demand. While these companies represent a small minority, their skepticism suggests that the hype over spot bitcoin ETFs may be unwarranted and could lead to unprofitable ventures for issuers. Launching a successful ETF requires significant investment upfront and there is no guarantee of success.
The SEC’s Stance on Bitcoin ETFs
The Securities and Exchange Commission (SEC) has historically rejected spot bitcoin ETF applications due to concerns about investor protection. However, hopes for approval were reignited when BlackRock filed for a spot bitcoin ETF in June, and when a court ruled that the SEC wrongly rejected Grayscale Investments’ application. SEC Chair Gary Gensler has indicated that the agency will consider multiple bitcoin ETF filings but has not provided a timeline. Despite these developments, ProShares CEO Michael Sapir remains unconvinced that the SEC will approve a filing soon. ProShares already offers cryptocurrency ETFs tied to futures.
The Costs of Launching a Bitcoin ETF
When the SEC does approve a bitcoin ETF, it is expected to approve several simultaneously to avoid giving any one issuer a first-mover advantage. This would drive up marketing expenses, which are already one of the biggest costs associated with an ETF launch. Combined with legal fees, SEC filing costs, and listing fees, launching even a simple ETF can cost around $100,000 or more if the product is complex. Issuers also face the challenge of pricing their products strategically to attract assets while covering upfront costs. The economics of spot bitcoin ETFs may not be favorable for all issuers, particularly those outside of the top-tier ETF providers.
Alternative Opportunities in Cryptocurrency ETFs
Amid the excitement over spot bitcoin ETFs, companies like Amplify and Roundhill are focusing on other cryptocurrency ETF opportunities. Roundhill has filed an SEC application for an ETF that generates income and bitcoin exposure through bitcoin-linked options. The company expects this product to debut in January. Amplify hopes that the buzz surrounding spot bitcoin ETFs will drive more assets to its existing BLOK ETF, which invests in crypto companies. Tom Staudt, COO of Ark Investments, acknowledges the potential of spot bitcoin ETFs but emphasizes that there are other cryptocurrency investing approaches to consider.
Hot Take: A Cautionary Approach to Bitcoin ETF Hype
While many anticipate the approval of spot bitcoin exchange-traded funds, some industry pioneers remain skeptical. The concerns over a crowded market, high costs, and potential lack of demand have led companies like ProShares, Amplify Investments, and Roundhill to steer clear of launching a bitcoin ETF. This skepticism suggests that the hype around spot bitcoin ETFs may be misplaced and could result in unprofitable ventures for issuers. However, even if a spot bitcoin ETF is approved, it may not benefit all issuers equally due to upfront costs and the need for strategic pricing. As such, alternative cryptocurrency ETF opportunities are being explored by companies like Amplify and Roundhill.
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