What Crypto-related ETFs Could Hit the US Market in 2022?

Several more metaverse ETFs will likely become available to US investors this year, industry professionals said, though the prospect of spot bitcoin and ether futures products remain less clear. 

Fund managers First Trust and ProShares filed for metaverse ETFs last month. The filings followed Subversive Capital’s plans — disclosed in October — to launch a metaverse ETF with the planned ticker PUNK.

There are already a few metaverse-focused ETFs trading in the US. Roundhill Investments’ Roundhill Ball Metaverse ETF (META), which launched in June, has roughly $950 million in assets, according to ETF.com. Exchange Traded Concepts launched the Fount Metaverse ETF (MTVR) in October, and that fund has about $14 million in assets.      

Though more people seem to be realizing that digital assets and digital infrastructure is the way of the future, the metaverse is “a little thin on the ground when it comes to investability,” according to Lara Crigger, managing editor of ETF Trends.

“I don’t really know that the industry has the bandwidth to support more than one of these funds, or maybe one or two,” she said during a Jan. 4 ETF Prime podcast hosted by The ETF Store President Nate Geraci.

“Maybe in a few years the picture’s going to look different, but for now I think you’re going to see a lot of crossover in holdings among these funds and a lot of non-pure-play names in the portfolios.”

META’s top five holdings are NVIDIA, Meta Platforms (formerly known as Facebook), Roblox, Microsoft and Unity Software. Tech behemoths Apple and Amazon are also within the top 10 holdings. 

Meanwhile, Apple is MTVR’s number one holding with a 14.7% weighting, according to ETF.com. Meta Platforms is second at 6.4%, followed by Alphabet, Pearl Abyss and Kakao Games.

Spot bitcoin versus ether futures

Crigger and Geraci said they don’t expect the US Securities and Exchange Commission (SEC) to approve a spot bitcoin ETF in 2022.

Though Bloomberg Intelligence Analyst James Seyffart agreed during the podcast that a spot bitcoin ETF in the US is unlikely this year, he noted that the SEC’s rulings on other types of ETFs could signal the fate of such products.

The SEC approved several bitcoin futures ETFs in 2021 that were filed under the Investment Company Act of 1940. These were exempt from the 19b-4 process, Seyffart noted, which puts the onus on the applicant to allay the concerns of the SEC’s Division of Trading and Markets.

But the agency will likely rule in April on futures-based bitcoin products from Teucrium and Valkyrie Investments, which were filed under the Securities Act of 1933 — the regulation under which spot bitcoin ETFs are filed. 

The SEC has denied proposed spot bitcoin ETFs in recent months, citing that bitcoin markets lack surveillance and may be subject to manipulation.

“What this does is it kind of opens the SEC to a form of attack,” Seyffart said of the upcoming rulings on the proposed products by Teucrium and Valkyrie. “They kind of have to make a decision here. They’ve been very iffy on their reasoning, and they haven’t defined what a market of significant size is.”

Grayscale Investments filed to convert the Grayscale Bitcoin Trust (GBTC) to an ETF. The firm subsequently argued in a letter that the approval of bitcoin futures-based ETFs, but not spot ETFs like GBTC, is “arbitrary and capricious.” Such rulings violate the Administrative Procedure Act (APA), the letter states, which requires federal agencies to treat “like situations alike.”

“If Grayscale is denied in the beginning of July…to convert GBTC, I could see Grayscale filing an APA lawsuit to try to go there,” Seyffart said. “Maybe the SEC decides they don’t want to deal with that.”

Seyffart also reiterated his stance to Geraci during the podcast that he expects an ether futures-based ETF to gain approval before a spot bitcoin fund. 

Derivatives marketplace CME Group launched ether futures in February, citing an increased institutional demand for transparent, exchange-listed crypto derivatives. CME Group introduced bitcoin futures in December 2017.

Geraci agreed with Seyffart, noting, “I just think for consistency, the SEC is going to have a bit of a more difficult time not approving that after approving the CME-traded bitcoin futures ETFs.”

Other crypto-related ETFs on the way in 2022

Grayscale filed in November to launch its first equity ETF. The proposed Future of Finance ETF (GFOF) would track an index consisting of US and non-U.S. equity securities involved in the advancement of the digital economy.

“I believe that the most exciting thing about the digital economy is how early it still is,” Grayscale CEO Michael Sonnenshein said in an investor letter published on Thursday. 

Another product likely to be approved in the coming months is the VanEck Gold and Bitcoin Strategy ETF. The firm revealed in a Dec. 17 disclosure that the planned actively managed offering would invest in gold and bitcoin futures contracts, gold-linked instruments, and exchange-traded products that provide exposure to gold or bitcoin.

“[People say] that bitcoin’s going to replace gold or bitcoin is the new gold or people hold bitcoin for the same reason that they hold gold, and I don’t think that’s true always,” Crigger said. “I think it’s interesting that they would pair those two together.”

Geraci added that VanEck could have difficulty marketing the product. 

“Gold bugs and the bitcoin maxis tend to go at each other’s throats,” he said. “Who are you marketing to here?”

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