Bitwise CIO: Market Volatility Doesn’t Help Spot Bitcoin ETF Applications

Industry execs agree, however, that the launch of a product betting against bitcoin could be a positive signal


Matt Hougan, CIO of Bitwise, at Permissionless 2022 | Source: Ben Solomon


key takeaways

  • The SEC’s deadlines to rule on spot bitcoin ETF proposals by Bitwise Asset Management and Grayscale Investments fall in the first week of July
  • The collapse of LUNA and the ongoing sell-off could impact regulator’s decision on the proposed products, Bitwise CIO Matt Hougan says

As the SEC gets set to rule on two spot bitcoin ETF applications within the next two weeks, the chief investment officer at Bitwise Asset Management said ongoing volatility in crypto markets could impact the regulator’s decision on such products.

Crypto index fund issuer Bitwise, which managed $1.2 billion in assets as of March 31, expects an SEC decision on its proposed spot bitcoin ETF by July 1. 

The regulator has until July 6 to rule on Grayscale Investments’ application to convert its bitcoin trust (GBTC) to an ETF. GBTC, which has $13.3 billion assets under management, has traded at a discount of about 30% in recent weeks.   

No spot bitcoin ETF has ever been approved in the US, and a number of industry watchers do not expect one to launch until 2023 at the earliest.

Bitwise CIO Matt Hougan told Blockworks that the SEC has historically considered the state of the crypto space more broadly when considering spot bitcoin products. 

“While that’s not the technical deciding point on spot bitcoin ETF applications, it’s of course the case that regulators would consider the entire environment when evaluating an application like this,” he said. “Things like the collapse of LUNA is not a great news item for the crypto industry and will probably at least enter into the minds of regulators as they review that.”

But Hougan noted that ProShares’ launch of an ETF betting against bitcoin on Tuesday is a positive signal that the SEC is on a path to eventually approve a spot ETF. The ProShares Short Bitcoin Strategy ETF (BITI) seeks daily investment results that correspond to the inverse of the daily performance of the S&P CME Bitcoin Futures Index.

“That is a sign of the SEC becoming more comfortable with the space and sort of following a crawl-walk-run strategy,” Hougan said. “The question in everyone’s mind is when will they get to the run part.”

A Grayscale spokesperson told Blockworks that the firm is also encouraged by the SEC’s continued acceptance of bitcoin exchange-traded products (ETPs), such as BITI, calling a spot bitcoin ETF “a natural next step.”    

Grayscale CEO Michael Sonnenshein said in a Twitter post on Tuesday that regulators have repeatedly shared concerns about the maturity of crypto’s underlying markets and their potential for fraud and manipulation. 

“How could one interpret BITI coming to market as anything other than further acknowledgment of bitcoin’s maturity?” the CEO tweeted.

“Bitcoin’s price discovery is supported by not only a healthy two-sided market that underpins multiple long products, but also a derivatives market robust enough to offer short exposure to retail investors.”

SEC Commissioner Hester Peirce said during the Regulator Transparency Project’s June 14 conference on regulating crypto that she is disappointed that “the SEC has not used more proactively the authorities it already has to sensibly regulate crypto.”

Peirce, who has been an outspoken advocate for a spot bitcoin ETF over the past year, added that the agency’s failure to approve one is “puzzling,” noting that the SEC subjects bitcoin-related products to “a more exacting standard” than it applies to other offerings. 

Bitwise’s pending filing is its second attempt to launch a spot bitcoin ETF. The San Francisco-based company had filed for one in 2019, but withdrew its request in January 2020 amid regulatory concerns. Bitwise refiled last October, including 150 pages of research within the application focused on price discovery in the crypto markets.  

While Sonnenshein has said publicly that Grayscale would consider suing the SEC if its proposal to convert GBTC to an ETF was denied, Hougan said Bitwise will likely stick with its research-centric approach.

“The SEC is clearly engaged in this space and they’re asking good questions,” Hougan said. “In the case they disapprove our application, we’ll have to see what the content of that disapproval is and whether there’s a reasonable research pathway to answer it or not.”

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