It will soon be possible to invest in Bitcoin (BTCUSD) through a U.S.-listed exchange traded fund (ETF)—well, in a roundabout way—after Wall Street's watchdog gave the green light to a fund that provides investors access to companies that have significant exposure to the world's leading cryptocurrency.
- The SEC has approved the Volt Crypto Industry Revolution and Tech ETF, providing investors access to companies with substantial exposure to Bitcoin.
- The fund is eyeing prominent companies in the crypto space to comprise its core holdings, such as MicroStrategy, Marathon Digital Holdings, and Bitfarms.
- The ETF plans to invest around 20% of assets in traditional technology names to offset the risk of its laser-focused strategy.
- Approval of the Volt Equity fund indicates that the SEC is open to signing off on Bitcoin ETFs if issuers can satisfy its investor protection concerns.
On Oct. 5, the Securities and Exchange Commission (SEC) approved the Volt Crypto Industry Revolution and Tech ETF, which will track the performance of "Bitcoin industry revolution companies," in other words, companies that hold most of their assets or investments in Bitcoin or that generate the lion's share of their profit through mining activities.
Bitcoin mining is the process by which new bitcoins are entered into circulation; it is also the way that new transactions are confirmed by the network and a critical component of the maintenance and development of the blockchain ledger.
At this stage, the fund is eyeing well-known companies in the crypto space to include in its core holdings, such as MicroStrategy Incorporated (MSTR), which sits on a $5.3 billion Bitcoin stack, representing the majority of the Nasdaq-listed enterprise software firm's treasury. Other crypto-centric firms under consideration for the fund's portfolio include mining and infrastructure plays Marathon Digital Holdings, Inc. (MARA) and Bitfarms Ltd. (BITF). The ETF also plans to invest around 20% of assets in traditional technology names like Tesla, Inc. (TSLA), Twitter, Inc. (TWTR), and Square, Inc. (SQ) to offset the risk of its laser-focused strategy.
A Sign of What's to Come
Although it may not be the ETF that directly holds Bitcoin many crypto purists had hoped for, the SEC's approval of the Volt Equity fund indicates that the agency is open to signing off on such an ETF if issuers can satisfy its investor protection concerns. Indeed, Volt Equity CEO and founder Tad Park believes that SEC Chair Gary Gensler is pro-Bitcoin but that markets misunderstand his stance of crypto regulation in the United States. Park argues that the SEC will be more likely to give the tick of approval to a direct Bitcoin ETF once custody providers can assure the regulatory agency that they can safely store digital currencies.
"I can say 'I have a gold ETF or a Bitcoin ETF,' but I'm storing that gold in my basement. Is the SEC gonna allow that? Probably not. Unless companies can show they can custody it and actually address a lot of the issues Gensler specifically mentioned, it's not gonna work," Park said in a Fox Business interview, per Cointelegraph.
A Futures-Backed ETF on the Horizon
Although the SEC recently delayed the deadline for four Bitcoin ETFs waiting approval, Gensler has expressed interest in reviewing applications for Bitcoin funds tied to futures contracts rather than the underlying asset since they don't seek direct exposure to the cryptocurrency.
Currently, over a dozen Bitcoin ETFs are awaiting approval, with the latest being Bitwise's physically backed Bitcoin ETF filed with NYSE Arca. The SEC rejected the fund's previous application in 2019 due to market manipulation and surveillance concerns. However, Bitwise CEO Matt Hougan argues that the market has matured, with the Chicago Mercantile Exchange (CME) now leading Bitcoin price discovery, per CoinDesk.
Volt's hard-fought SEC Bitcoin equity fund approval gives digital asset investors hope that the regulator is warming to cryptocurrency ETFs—albeit on its own terms—paving the way for imminent approvals later this year and into 2022.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.