ARK Invest and 21Shares file applications for Ether and Bitcoin futures ETFs
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(Kitco News) - The queue of cryptocurrency-related exchange-traded fund (ETF) applications before the Securities and Exchange Commission (SEC) just got longer as Cathie Wood’s ARK Invest and 21Shares have jointly applied for two futures ETF products involving Ether (ETH) and Bitcoin (BTC).
According to an application filed by investment advisor Empowered Funds on Thursday, the firms are looking to introduce the ARK 21Shares Active Ethereum Futures ETF (ARKZ) and the ARK 21Shares Active Bitcoin Ethereum Strategy ETF (ARKY).
The filing says the new products will not invest directly in Ether and Bitcoin, nor will they “maintain direct exposure to ‘spot’ Ether” or Bitcoin. Instead, they will focus on cash-settled futures contracts traded on commodity exchanges registered with the Commodity Futures Trading Commission (CFTC), such as the Chicago Mercantile Exchange (CME).
ARKZ will invest at least 25% of its funds in Ether futures products related to the ETH cryptocurrency, and funds not allocated toward these products will be invested in U.S. Treasuries, market instruments, and repurchase agreements.
ARKY will invest at least 25% of its funds in both Bitcoin and Ether futures products, and all remaining assets will be allocated to cash and cash equivalents, primarily U.S. government securities, according to the filing.
The new applications come on the heels of multiple fillings for Ether futures ETF products by some of the largest asset managers in the world. This includes applications for a Bitwise Ethereum Strategy ETF, Roundhill Ether Strategy ETF, VanEck Ethereum Strategy ETF, ProShares Ether Strategy ETF, and the newly filed ProShares Short Ether Strategy ETF.
Digital asset manager Grayscale also recently filed two applications for a proposed Grayscale Global Bitcoin Composite ETF and a Grayscale Ethereum Futures ETF.
The increased focus on digital asset ETFs came after BlackRock filed for a spot Bitcoin ETF in June, which was subsequently followed by similar applications from a host of asset managers, including Fidelity, Invesco/Galaxy, WisdomTree, VanEck, Wise Origin and ARK.
After the initial flurry of Ether futures ETF applications, the SEC was quick to say that it wouldn’t block the debut of the products, according to a report from Bloomberg.
“The SEC is likely favoring futures ETFs over spot ETFs because futures are traded on the CME between known counterparties and regulated under existing legal frameworks,” said Jesper Johansen, CEO and Founder of Northstake. “This is unlike spot ETFs, which must access the underlying asset through crypto exchanges, thus exposing investors to potentially more risk.”
“Depending on the investment strategy, Ether futures ETFs are an easy way to gain short-term exposure to Ether,” he added. “However, if you hold Ether as an index in developing Web3 economies, then holding and staking Ether is by far the most cost and capital-efficient way to proceed.”
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According to David Waugh, Business Development and Communications Specialist at Coinbits, the fact that the SEC did not tell firms to withdraw their applications for Ether futures ETFs indicates “that the agency is taking them seriously,” and “the recent approval of a 2X leveraged BTC ETF also bodes well for applicants.”
“Though it might sound curious to approve a leveraged futures ETF before letting a spot ETF go to market, given some of its legal battles, the SEC's delay on the spot BTC ETF applications makes sense,” he said. “It is unlikely to approve spot BTC ETFs until a more definitive resolution to its ongoing case with Grayscale regarding the Grayscale Bitcoin Trust (GBTC) is reached.”
Grayscale is currently embroiled in a lawsuit with the SEC as the firm is looking to convert GBTC into an ETF product, and a decision on the case could be issued as soon as next week. The structure of GBTC has resulted in the product trading at a significant discount compared to the spot price of BTC, at one point trading down 48.5%.
“The GBTC discount to NAV has risen from -40% to -25%, indicating that markets are bullish on Grayscale's prospects,” Waugh said. “If they prevail and the GBTC is converted to a spot ETF, it will force the SEC's hand on other firms' applications.”
Waugh said a spot BTC ETF “would undoubtedly open the floodgates for more institutional liquidity to flow into BTC,” and suggested that “an approval followed by Bitcoin's upcoming halving event would combine increased demand with decreased supply and likely positively impact price.”
He also noted the recent decision by the courts to hand former JP Morgan precious metals traders jail time for manipulating the price of gold as a factor to consider when it comes to the ETF applications and the SEC’s pushback against market manipulation.
“Could bad actors do the same with bitcoin?” he questioned. “One thing that sets Bitcoin apart is its ease of self-custody and verifiability, making it more resilient to manipulation where paper claims exceed actual holdings. The balance of Bitcoin held on exchanges also continues to drop, indicating that self-custody is rising. This underlying amount of Bitcoin held in self-custody will make it harder for nefarious actors to ‘spoof’ its price in a way similar to gold.”
“The SEC’s approval of a spot bitcoin ETF will likely ignite renewed interest from institutional investors in crypto as an emerging asset class,” Johansen said. “However, until we have crypto regulation formalized in the US, institutional adoption will remain stagnant. Now, whether the SEC will approve a spot bitcoin ETF before said crypto regulation is passed remains to be seen.”