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Where Are the Bitcoin ETFs? The Challenges of Custuring a Cryptocurrency Exchange Traded Fund in the US Securities and Exchange Commission
As such, the spot bitcoin ETF issuers will share a small group of service providers, at least at launch. Between them, crypto exchanges Coinbase and Gemini will provide custody services for practically all the new ETFs. Only JPMorgan, Cantor Fitzgerald, Virtu Financial, and Jane Street, all multinational financial services firms, have signed on as APs to date.
A selection of financial institutions, including household names like BlackRock and Fidelity, have been given permission by the US Securities and Exchange Commission (SEC) to launch spot bitcoin exchange-traded funds (ETFs), whose value tracks the price of bitcoin. The approval comes after a peculiar incident on January 9, in which a hijacker used the agency’s X account to announce the ETFs prematurely, leading to market chaos and forcing the SEC to publish a retraction.
In the 2008 white paper, the inventor of the digital currency, dubbed “Saty”, talked about how electronic cash could be passed from person to person, without a financial institution controlling it. It was two fingers to profit-hungry Wall Street. Yet the ETFs will be issued by some of the largest financial institutions in the US. Nor do investors own or keep any actual bitcoin; they are buying a representation. ETF investors may stand to “benefit from the financial upside, but will not attain all the benefits that Satoshi envisioned,” says Peter McCormack, host of podcast What Bitcoin Did. “The true ownership of bitcoin entails direct possession.”
The issuers of the exchange traded funds would charge a management fee as a proportion of the sum people invest. One layer deeper, there’s another group of companies that stand to make a lot of money. It is these firms who are responsible for storing and protecting the digital currency, as well as creating new shares and cashing out existing ones in the case of authorized participants. Market Makers are used to help price Exchange Traded Funds accurately and ensure smooth trades in the public market.
James Seyffart says that there is a limited pool of trading firms because of the amount of cash needed to deal with large amounts of assets leaving the door. The challenges of handling digital currency such as bitcoins, which sit on different technical rails than regular shares, make it difficult for willing and qualified candidates to be in custody. He said it was a whole different area.
The victory is being called a historic one by devotees after the US regulators gave the green light to a new way for people to invest in the asset. They will not go near it on their own.
The difficulty in reaching widespread adoption to date is explained by the dissonance between the celebratory reception to the new exchange and their blatant incompatibility with the Nakamoto ethos. They say that the ETFs address the reluctance of regular people to store their digital currency in a safe way.
The ETFs will have a “mosquito effect,” says Max Keiser, who advises the government of El Salvador on bitcoin policy, “carrying the mind-virus of bitcoin far and wide.”
