The cryptocurrency industry has been eagerly awaiting the arrival of cryptocurrency exchange-traded funds (ETFs). These funds allow investors to gain exposure to certain asset classes without having to directly purchase and store the underlying cryptocurrencies, making them an attractive option for those interested in getting involved in the crypto space.
Most ETFs are passive investments pegged to the performance of a particular index. In comparison to a popular investment option, mutual funds, unlike ETFs, are mostly active instruments, actively managed, and mutual funds pricing is tied to end of trading day. An ETF share on the other hand is priced around its fair value. This fair value will change throughout the day as the value of the underlying securities
changes. An ETF for cryptocurrencies is a financial instrument that functions similarly to a traditional index fund but tracks the performance of a group of cryptocurrencies rather than stocks or bonds. As opposed to direct ownership of individual digital assets, an ETF pools together various cryptocurrencies, creating a diversified portfolio that mirrors a particular cryptocurrency index or benchmark. This diversification helps mitigate the risks associated with investing directly with or in any single
The U.S. Securities and Exchange Commission (SEC) has been cautious about approving crypto ETFs, citing concerns over transparency; market manipulation, custody of assets, and investor protection.
Despite these concerns, the SEC has acknowledged the rapidly growing interest in crypto ETFs and has held several public meetings to discuss the issue. In these meetings, three hurdles were cited as an explanation for why crypto ETFs haven't been approved yet: (1) the SEC has yet to finalize regulations specific to crypto ETFs, creating uncertainty for issuers, (2) the cryptocurrency market is known for its
high volatility, which raises concerns about potential investor losses, (3) the SEC wants to ensure that the underlying crypto assets are held securely, and in compliance with regulations. However, the SEC has since taken promising steps to address some of these concerns and indicated that it is open to approving crypto ETFs that have adequate safeguards against market manipulation and proper custody of underlying assets.
While the SEC has not given a specific date for when it might approve crypto ETFs, most experts believe that it could happen as early as 2024 with the first crypto ETFs based on Bitcoin. Currently, the “window” for approval is the beginning of January which coincides with the deadline of the application from ARK Invest and 21Shares. The long wait for kicking off a new era of crypto trading for mainstream and professional traders alike may soon be here and with it a genesis of new beginings for crypto users and fintech providers.
Dixon Bernier, CEO