Hello there! Welcome back. We’ve been thinking about the Gary Gensler, chairman of the U.S. Securities and Exchange Commission and what he’s said about the prospects for a bitcoin
ETF in recent days.
We chatted with ETF industry pioneer Dave Nadig, chief investment officer and director of research of ETF Trends and ETF Database (which was recently bought by index provider Alerian), who thinks that Gensler has laid the ground work for a bitcoin exchange-traded fund to hit the market soon, possibly before the end of 2021.
But before we get into that, it is worth noting that last week’s edition pointed to the possibility that Cathie Wood’s Ark Investment Management could be one of the first funds to invest in Robinhood Markets Inc.
Indeed, the Ark Innovation ETF
the flagship fund of Ark Investment, purchased nearly 1.3 million shares of Robinhood during its first day of trade, worth roughly $45 million. Even if it was a relatively easy call, you read it here first.
On top of that, we’ve been noting why ETF inflows have been drawing heavy appetite.
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Road to a bitcoin ETF
During an interview with CNBC this week, Gensler said that he would anticipate that his staff will “review potentially some ETF filings around investing in bitcoin futures on the Chicago Mercantile Exchange under what we call in our craft the 1940 Act.”
The 1940 Investment Company Act regulates mutual funds and closed-end funds, and is intended to provide significant investor protections, one of Gensler’s central pursuits in regulating crypto like bitcoin, as well as Ether
on the Ethereum blockchain and more speculative, meme assets like dogecoin
Gensler’s comments come after ProFunds, a mutual fund management company that looks after some $60 billion, announced the first mutual fund in the U.S. that offers bitcoinexposure, Bitcoin Strategy ProFund, via futures
Nadig thinks that this new fund and Gensler’s remarks make for more profound developments than the industry may be expecting, paving the way for a bitcoin ETF.
“I suspect that if there isn’t already today, that there will be a USO for bitcoin,” coming soon, referring to the oil-futures pegged ETF that became popular among individual investors near the onset of COVID pandemic in April of 2020. (USO also saw some rough times during that period too, which ultimately led to a letter from its regulator.)
Nadig says that Gensler may view bitcoin futures as an area of the market that offers better protection for average investors seeking exposure to crypto than those fund providers aiming to offer physical bitcoin, custodied in wallets or other digital storage platforms.
CME Group Inc.
the world’s largest futures exchange, began trading its bitcoin futures contract in late December of 2017. As the former chairman of the Commodity Futures Trading Commission from 2009 to 2014, Gensler may also feel more comfortable with futures as the underpinning for an ETF. The CME kicked off a mini bitcoin futures contract this spring.
“I’d be shocked if we don’t have a futures-based [ETF] product by year-end,” Nadig speculated.
The fund pro also noted that if this isn’t the most apparent clue being offered by the SEC then he expects that the regulator may eventually deliver more explicit guidance on how to construct a bitcoin or crypto ETF.
More than a dozen bitcoin ETF applications have been submitted and none have been approved of late. Gensler did appear to reference Grayscale Bitcoin Trust
which he represented as a product that offers bitcoin exposure even if it doesn’t yet carry a tax-efficient ETF wrapper.
“Well, we already have some funds in the crypto space—bitcoin. The largest has been around for about seven years, it’s not an ETF but it’s been around, it’s about $20 billion in size,” Gensler said.
GBTC, referring to the ticker for the Grayscale trust, clocks in at about $22 billion in size, according to FactSet, making it by far one of the largest crypto funds presently.
The good and the bad
Top 5 gainers of the past week
VanEck Vectors Biotech ETF
Invesco Solar ETF
iShares Biotechnology ETF
SPDR S&P Semiconductor ETF
Invesco Dynamic Semiconductors ETF
Source: FactSet, through Wednesday, Aug.4, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater
Top 5 decliners of the past week
VanEck Vectors Oil Services ETF
United States Oil Fund LP
Global X Uranium ETF
SPDR S&P Oil & Gas Exploration & Production ETF
Alerian MLP ETF
Is there an ETF for that
SonicShares is offering a shipping-focused ETF, which may be a useful way to get exposure to markets amid concerns about COVID-inspired supply-chain bottlenecks and problems like the blockage of the Suez Canal earlier this year, which gummed up global supply chains back in March.
“Shipping tends to be an unseen activity for most of us, but about 90 percent of what’s in our homes was shipped here from overseas,” wrote Paul Somma, the founder of SonicShares, in a statement.
We’ll get back to you on the fees for Global Shipping ETF, which will trade on the NYSE Arca platform under the ticker symbol “BOAT,” and is pegged to this index.
It’s worth noting that Grayscale just announced the appointment of Dave LaValle as Global Head of ETFs, which may speak to the company’s hopes to create a raft of crypto funds. Incidentally, LaValle is the former CEO of Alerian.
Visual of the week
Our graphic of the week comes from Stephen Todd, who runs financial blog and newsletter the Todd Market Forecast.
He notes that the relationship between stocks and bonds has been quizzical of late, with the 10-year Treasury note
hitting a near six month low at around 1.1255% on Wednesday and the S&P 500 index
finishing at a record. Usually lower yields, meaning bond prices are rising, imply that investors are harboring concerns about the economy or the market or both. That tends to push stocks down and bond prices up (and yields down).
Todd says that usually there is an inverse correlation between stocks, as gauged by the SPDR S&P 500 ETF Trust
and bonds, reflected in the iShares 20+Year Treasury Bond ETF
but he makes the case that lower yields ultimate help stocks, pointing to the attached chart.
via Stephen Todd
“But, look at the general direction. Bond yields are dropping and the SPY is rallying. I have always believed that lower rates help the stock market,” Todd writes.
There are a lot of bulls hoping—and betting—that Todd is right.