VanEck Gives Bitcoin ETF Another Go

An array of fund issuers and investment firms have tried to bring bitcoin exchange traded funds to market, and each and every one of those proposals was turned back by the Securities and Exchange Commission. 

What Happened: Some issuers aren't giving up. VanEck, which previously attempted to bring a bitcoin ETF to market, filed plans with the SEC for the VanEck Bitcoin Trust.

If the fund comes to life, and that is a big "if" for now, it would trade on the CBOE.

“The Trust’s investment objective is to reflect the performance of the MVIS CryptoCompare Bitcoin Benchmark Rate less the expenses of the Trust’s operations. In seeking to achieve its investment objective, the Trust will hold bitcoin and will value its Shares daily based on the reported MVIS CryptoCompare Bitcoin Benchmark Rate, which is calculated based on prices contributed by exchanges that the Sponsor’s affiliate, MV Index Solutions GmbH (MVIS), believes represent the top five bitcoin exchanges based on the industry leading CryptoCompare Exchange Benchmark review report,” according to the filing.

Why It's Important: With the largest digital currency flirting with $30,000, the previously existing demand for a bitcoin ETF is only heightened, and it's not a stretch to say when such a product finally comes to market, it will shatter a slew of asset-gathering records.

Getting a bitcoin ETF to market is a different matter altogether. To date, the SEC is issuer-agnostic, as it's rejected every proposal for a bitcoin ETF, usually citing concerns about market manipulation and fraud in the crypto currency space.

Regulators are OK with crypto-based index funds that trade over-the-counter. For example, the Grayscale Bitcoin Trust GBTC is more than seven years old and has $17.3 billion in assets under management, according to issuer data.

The Bitwise 10 Crypto Index Fund BITW, which recently came to market, already has $350 million in assets. San Francisco-based Bitwise is one of the more credible contenders in the bitcoin ETF competition.

The index fund structure is increasing the clamoring for a bitcoin ETF because GBTC and BITW can and do sport market prices that are well in excess of net asset values.

For example, GBTC closed at $32.88 Tuesday, but one share of the index fund is representative of $26.62 worth of bitcoin, according to issuer data.

The creation/redemption process used by ETFs keeps those products closer to net asset value and could do the same with a bitcoin ETF.

“The Trust creates and redeems Shares from time to time, but only in one or more Creation Baskets. Creation Baskets are only made in exchange for delivery to the Trust or the distribution by the Trust of the amount of bitcoin represented by the baskets being created or redeemed, the amount of which is equal to the combined NAV of the number of Shares included in the baskets being created or redeemed,” according to VanEck's SEC filing.

What's Next: As for what's next when it comes to bitcoin ETFs, that's anyone's guess, but there is some optimism that with change at the helm of the SEC, 2021 could be the year a bitcoin ETF finally debuts.

The Block Research's 2021 Digital Asset Outlook indicates 37.8% of those surveyed agree and 13.5% strongly agree that next year will be the year the SEC finally green lights a bitcoin ETF.