More than two years have passed since the first application to operate a Bitcoin exchange-traded fund, one that would allow Wall Street investors to buy and sell instruments as if they were equity securities, was filed with the United States Securities and Exchange Commission. As of March 2020, each Bitcoin ETF proposal has been rejected by SEC regulators more than once, thus prompting some analysts to believe if it makes sense for applicants to keep trying.
Wilshire Phoenix, a respected portfolio management firm, is the latest to have suffered rejection, and its principals are reportedly considering withdrawing their application for good. One particular aspect of the regulatory process that is seldom talked about revolves around investor demand; the moment SEC regulators hear rumblings from insurance companies and pension funds, you can bet that they would rush towards approval. The problem in 2020 is that Bitcoin futures, which have been trading on the Chicago Mercantile Exchange for a couple of years, are not lighting up the electronic boards on the trading floor.
Pressure on SEC Continues to Rise
According to Nick Colas, a cryptocurrency analyst at market research firm DataTrek, the Digital Dollar Project of the Commodity Futures Trading Commission could be the catalyst that could prompt SEC regulators to approve a Bitcoin ETF. This project aims to create a digital currency version of the U.S. dollar, and it is moving along at a decent pace because other jurisdictions have already accomplished this in Russia, Singapore, and the Eastern Caribbean Economic Zone.
If the Federal Reserve and the U.S. Treasury fall behind on blockchain technology adoption, they will put the greenback at risk of losing global relevancy. Imagine a digital version of the euro being implemented before the American dollar; this is the kind of scenario that financial regulators in the U.S. should strive to avoid.
With digital versions of the greenback in circulation, SEC regulators would be hard-pressed to continue rejecting Bitcoin ETF applications. As for whether investors would find cryptocurrency ETFs to be too exotic, one only needs to look at The Obesity ETF, the Purefunds Video Game Technology ETF, and the Global X Fishing EFT; all these funds are actively trading on Wall Street, and their thematic portfolios are certainly unusual. As for volatility in the cryptocurrency markets, this is an issue of self-balancing. More institutional investors need to come aboard for the market to reach the stability everyone desires.