• Decision “not a total surprise” for Texas-based firm, which now looks to address SEC’s concerns.
  • Agency looking to mitigate against market manipulation, hacks and theft in space as “whole world is going to be watching”

Several days after delaying its decision to approve or deny VanEck’s bitcoin ETF, the Securities and Exchange Commission is extending its deadline to make a ruling on a similar application by Valkyrie Digital Assets. 

The Texas-based firm filed in January to launch the Valkyrie Bitcoin Fund, an ETF that would hold bitcoin and seek to reflect the performance of its value, according to its preliminary prospectus, providing investors with “a cost-effective and convenient way” to invest in the cryptocurrency.

The SEC said in a June 22 disclosure that it needs more time to consider the Valkyrie investment product and has named Aug. 10 as the date by which it will approve, disapprove or institute proceedings to make a decision.

“The SEC has been fairly consistent in how it treats Bitcoin ETF applications, so this isn’t a total surprise to us,” Valkyrie Investments CEO Leah Wald told Blockworks in an email. “That said, we were hoping for a different outcome and hope to engage regulators in a constructive way to get additional feedback and work towards our ultimate goal of being approved.”

Delay is no surprise

Though ETFs that provide investors direct access to bitcoin exist outside of the United States, the SEC has denied a dozen or so such offerings in recent years. The commission last week postponed its decision on VanEck’s proposed offering until July, requesting that people submit their views or concerns on the proposal. 

“We continue to believe there will not be a Bitcoin ETF until 2022 at the earliest due to ongoing SEC concerns about fraud and inability for an ETF to close to new investors,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA.

Purpose Investments launched the world’s first ETF backed by physically settled bitcoin in February on the Toronto Stock Exchange. The fund currently has $679 million assets under management.

Ether Capital CEO Brian Mosoff, whose firm served as a consultant to Purpose as it prepared its bitcoin ETF, noted that he wasn’t surprised about the latest delay, citing the recent administration change and turnover at the SEC.

Gary Gensler, who was nominated by President Biden in February to chair the SEC, was sworn in as a commissioner in April. Gensler said in an interview with CNBC last month that “we need greater investor protection” around bitcoin.

“I think a lot of people who just talk about crypto as an asset class and whether it’s appropriate to approve now forget that there’s new people at the helm who have to decide their position on what is still a very new asset class,” he said.

Mosoff previously told Blockworks that unlike in 2017, when the Ontario Securities Commission rejected a number of bitcoin ETF proposals, Canadian regulators became convinced that there were investment-grade custody and infrastructure services available to support an ETF. They also grew comfortable with a workflow to allow for daily liquidity, he said.

With demand for bitcoin ETFs in the US from retail and institutional investors, Mosoff said he believes it has been proven for regulators that this asset class is here to stay. He added however that it’s hard to know when they will finally approve them.

A shield from market manipulation

“The Canadian ETFs are much smaller, and that’s not to say that they’re less important, but with the SEC the whole world is going to be watching and potentially buying these products,” Mosoff said. “They want to make sure that they’re shielding from market manipulation [and that] the risk of hacks and theft are as mitigated as possible given this technology.”

As the SEC continues to deliberate on these products, more investors seek other ways to get crypto exposure, such as holding bitcoin on their own, buying a trust, or investing in companies with bitcoin on its balance sheet.

Invesco filed earlier this month to launch a Crypto Economy ETF, which would join other US-listed funds that invest in the stocks of digital asset companies and cryptocurrency futures. US blockchain ETFs have had higher performance dispersion in the trailing year than any other thematic fund category, recent Bloomberg Intelligence data showed.

“There is a group of people out there who want just directional exposure to these assets,” Mosoff said, “and they don’t have a clean access point today.”

Wald declined to share a timeline that Valkyrie hopes to have its bitcoin ETF approved.

“We are eager to talk with the SEC to learn where it feels the application may have fallen short so that we can fully address these concerns and make any necessary changes that strengthen our product and put it in a more favorable light,” she said.

  • 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.