Advisors know that the exchange traded funds wrapper is ideal for a variety of asset classes, including alternatives such as commodities.
A strong case can be made that it was ETFs backed by physical holdings of gold, some of which are now among the largest commodities ETFs in the world, democratized commodities investing and made it more efficient for and appealing to a broader audience, including advisors.
In essence, gold-backed ETFs and their precious metals counterparts are spot products – vastly superior mousetraps compared to futures-based commodities exchange traded products, which can subject investors to the scourge of negative roll yield.
With that in mind, it’s arguably surprising that the Securities and Exchange Commission (SEC) approved futures-based bitcoin ETFs but has consistently rejected applications for those of the spot variety. That may soon change, potentially making the largest cryptocurrency more accessible and relevant to a wider set of advisors.
What Happened on Spot Bitcoin ETF Front
Perhaps you’re an advisors that’s heard of the Grayscale Bitcoin Trust (GBTC). GBTC is structured as index fund – the largest of its kind dedicated to bitcoin. That makes a logical GBTC a logical candidate to be converted to the ETF structure, but the SEC has consistently rejected Grayscale’s related efforts. However, the issuer scored a major legal victory Tuesday – one that could pave the way for the imminent launch of spot bitcoin ETFs.
U.S. Court of Appeals Circuit Judge Neomi Rao ordered that Grayscale’s petition for review of its spot bitcoin ETF application be reviewed and that the SEC did not “offer any explanation” regarding how or why the issuer was in the wrong. The decision comes two months after the SEC again rejected the issuer’s conversion efforts and while it’s not a guarantee of spot bitcoin ETFs coming to life in the U.S., it is a step in the right direction.
“The Commission failed to adequately explain why it approved the listing of two bitcoin futures ETPs but not Grayscale’s proposed bitcoin ETP,” according to Rao’s decision. “In the absence of a coherent explanation, this unlike regulatory treatment of like products is unlawful.”
Grayscale didn’t hold back in terms of praising the ruling, calling it “a monumental step forward for American investors, the Bitcoin ecosystem, and all those who have been advocating for Bitcoin exposure through the added protections of the ETF wrapper.”
Spot Bitcoin ETF Kind of a Big Deal
The proof of the potential potency of a spot bitcoin ETF is in the pudding as the digital currency surged following Tuesday’s ruling. The same is true of an array of crypto-related stocks and ETFs.
It remains to be seen, but should the Grayscale ruling force the SEC’s hand, essentially making the commission approve spot bitcoin ETFs, it’s possible the cryptocurrency’s prices will surge in exponential fashion because a new demand outlet will be created.
Consider the following. When the SPDR Gold Shares (NYSEARCA: GLD) debuted on Nov. 18, 2004, spot gold prices settled at $442 per troy ounce. A year later, spot gold surpassed $500 an ounce for the first time in nearly 18 years. Today, the yellow metal trades north of $1,900. That appreciation isn’t entirely attributable GLD and its peers, but the gold ETFs certainly had a hand in bullion’s long-term rise. The same could well be true of spot bitcoin ETFs’ impact on the digital currency.
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