• Crypto asset manager’s latest filing includes 150 pages of research addressing SEC’s questions about bitcoin price discovery
  • A physically backed bitcoin ETF will ultimately take the majority of assets compared to futures-based ETFs, Bitwise CIO Matt Hougan tells Blockworks

Bitwise Asset Management has filed for an exchange-traded product that would hold bitcoin directly, just days before some industry watchers expect the SEC will approve products that invest primarily in bitcoin futures contracts.

The San Francisco-based crypto fund group had previously filed for a physically backed bitcoin ETF in 2019, but withdrew its request in January 2020 amid SEC concerns. The agency has rejected several similar bitcoin ETF proposals from other issuers in recent years. 

Bitwise CIO Matt Hougan said in August that the company had met with the SEC about a dozen times over the past 16 months to discuss the crypto market and present research. He noted at the time that the firm would not refile for a bitcoin ETP until it was confident the application would be approved.  

Bitwise has spent the last two years doing research on where price discovery occurs in the bitcoin market, which was a question the SEC highlighted in a 112-page response to the firm’s last bitcoin ETF filing, Hougan told Blockworks in an interview this week. 

The firm first spent four months evaluating the quality of various bitcoin data providers before then surveying academic literature in the space, seeking out the various ways to investigate price discovery and applying those to the leading spot markets using historical data.

Bitwise chose Coin Metrics, which covered 26 exchanges at the time, as the lead data provider for its analysis. As part of Bitwise’s latest filing to launch the Bitwise Bitcoin ETP Trust, the fund group published its findings — roughly 150 pages of data-driven research that it hopes will help the product gain approval.

“What it shows is that the CME bitcoin futures market leads price discovery compared to both spot bitcoin markets like Coinbase and offshore bitcoin derivatives exchanges like BitMex and FTX,” Hougan explained. “Because this has been the primary objection the SEC has had to past spot bitcoin ETF filings, we think we’ve now satisfied their concerns.”

The SEC has up to 240 days from the filing date to approve or deny the proposal, and historically they have taken all of that time, Hougan said. The SEC’s deadline to respond to fund manager VanEck’s bitcoin ETF application is in mid-November.

It’s possible the SEC will ask Bitwise and other filers to take another step before approving, the CIO explained. The firm is publishing its research so as to put it on the record and have the SEC respond to it, Hougan said, which can move the industry forward if additional steps are needed. 

“The regulatory path is always uncertain and there’s no guarantee that this filing will be approved,” Hougan said.

Futures vs. spot ETF

The filing comes after Bitwise filed for a bitcoin strategy ETF in September that focuses on bitcoin futures contracts.  

Other futures-based bitcoin ETFs, which SEC Chairman Gary Gensler has implied the agency would favor, could be approved as early as next week, as the SEC’s 75-day limit to decide on a proposed fund by ProShares runs out on Monday.

Valkyrie, another issuer that filed for a futures-based ETF, added a ticker to the fund’s proposed prospectus on Wednesday, which Bloomberg Intelligence ETF Analyst Eric Balchunas said in a Twitter post is something that often happens when a fund is getting set to launch.

The SEC’s deadline to rule on Bitwise’s futures-based ETF expires next month. 

“We’re still excited to hopefully bring a futures-based ETF to market because the regulatory pathway looks shorter, and compared to existing alternatives in the market today, a futures-based ETF can be really attractive,” Hougan said. 

Futures-based ETFs don’t have the premium and discount issues that go with OTC-traded trusts, he added, or the paperwork and accreditation burdens that come from private placements.

Still, industry professionals have noted some complications of a futures-based ETF, such as roll costs and contango, which may make them less than ideal for many investors.

“I think long-term if there is a spot bitcoin ETF approval, those spot bitcoin ETFs will hold a majority of assets,” Hougan said. “Honestly, what most investors want is just access to the price of bitcoin and not the complications that come with a futures-based product.”

  • Ben Strack is a Denver-based reporter covering macro economics, financial services and digital asset management. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence, and was a reporter and editor for various local newspapers on Long Island. He graduated from the University of Maryland with a degree in journalism.