Ben Strack

<div id="highlights-block_62b388fe770f9" class="highlights">
 <ul>
 <li>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</li>
 <li>The collapse of LUNA and the ongoing sell-off could impact regulator’s decision on the proposed products, Bitwise CIO Matt Hougan says</li>
 </ul>
 
</div>



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. <a href="https://grayscale.com/products/grayscale-bitcoin-trust/" target="_blank" rel="noreferrer noopener">GBTC</a>, which has $13.3 billion assets under management, <a href="https://ycharts.com/companies/GBTC/discount_or_premium_to_nav" target="_blank" rel="noreferrer noopener">has traded at a discount</a> of about 30% in recent weeks.&nbsp;&nbsp;&nbsp;



No spot bitcoin ETF has ever been approved in the US, and a number of industry watchers <a href="https://cms.blockworks.co/crypto-execs-read-the-tea-leaves-on-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">do not expect one to launch</a> 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.&nbsp;



“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 <a href="https://cms.blockworks.co/proshares-to-launch-first-us-etf-thats-bearish-on-bitcoin/" target="_blank" rel="noreferrer noopener">ProShares’ launch</a> 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&amp;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.”&nbsp;&nbsp;&nbsp;&nbsp;



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.&nbsp;



“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 <a href="https://cms.blockworks.co/bitwise-tries-once-more-for-spot-bitcoin-etp/" target="_blank" rel="noreferrer noopener">refiled last October</a>, including 150 pages of research within the application focused on price discovery in the crypto markets.  



While Sonnenshein has said publicly that Grayscale <a href="https://cms.blockworks.co/grayscale-threatens-legal-action-if-sec-rejects-bitcoin-etf-conversion-bid/">would consider suing the SEC</a> 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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Bitwise CIO: Market Volatility Doesn’t Help Spot Bitcoin ETF Applications

<div id="highlights-block_629f480d80866" class="highlights">
 <ul>
 <li>The Ball Multicoin Bitwise Metaverse Index’s top holdings include ether, chainlink, solana, filecoin and polygon</li>
 <li>Ball said he expects tens of trillions in value to be created and reallocated to support the metaverse in the coming decades</li>
 </ul>
 
</div>



Bitwise Asset Management has joined forces with Multicoin Capital and the managing partner of EpyllionCo to launch an index that offers exposure to cryptoassets central to the metaverse.



The Ball Multicoin Bitwise Metaverse Index is set to include up to 40 assets, the companies revealed Tuesday, and a fund tracking the index is now available to qualified purchasers for private placement subscription with a $100,000 minimum investment.



San Francisco-based Bitwise had more than $1.2 billion as of March 31. In 2017 it created what is now the world’s largest crypto index fund — <a href="https://bitwiseinvestments.com/crypto-funds/bitw" target="_blank" rel="noreferrer noopener">the Bitwise 10 Crypto Index Fund</a> — and expanded to other sectors, launching <a href="https://bitwiseinvestments.com/crypto-funds/defi" target="_blank" rel="noreferrer noopener">a DeFi fund</a> and an <a href="https://bitwiseinvestments.com/crypto-funds/nft" target="_blank" rel="noreferrer noopener">NFT-focused fund</a> last year.



The company has partnered with crypto investment firm Multicoin Capital and Matthew Ball, a venture capitalist and managing partner of EpyllionCo, which operates an early-stage venture fund. Ball co-founded the <a href="https://www.roundhillinvestments.com/etf/metv/" target="_blank" rel="noreferrer noopener">Roundhill Ball Metaverse ETF</a> (METV) that launched in June 2021 and has $539 million in assets.



“We really assembled a dream team of experts around this topic, and I’m excited by the index and fund that’s come out of it,” Bitwise Chief Investment Officer Matt Hougan told Blockworks.&nbsp;



<blockquote class="wp-block-quote">“The metaverse is a big opportunity and, if it’s going to succeed, it’s going to be built to a significant degree on crypto and public blockchains. This strategy captures that opportunity set.”</blockquote>



The Ball Multicoin Bitwise Metaverse Index focuses on four sectors: interoperability, ledgers, DeFi (decentralized finance) and the enabling of communities. Top holdings are ether (ETH), chainlink (LINK), solana (SOL), filecoin (FIL) and polygon (MATIC). Others include the sandbox (SAND) and decentraland (MANA).



It screens for risks around liquidity, regulation and asset integrity, and adds discretionary overweights to increase exposure to assets that, in the view of the index’s governing committee, have high growth potential.



Ball said in a statement that he expects tens of trillions in value to be created and reallocated to support the metaverse in the coming decades. Multicoin Capital Managing Partner Kyle Samani called the metaverse “one of the most audacious and exciting ideas ever conceived.”



“However, in order for it to be vastly accessible, it must be built on an open, decentralized, credibly neutral foundation, which means it must be built in large part with crypto assets and public blockchains,&#8221; Samani said in a statement. &#8220;With literally thousands of crypto assets to choose from, underwriting the most investable opportunities is a never-ending challenge.”&nbsp;



Hougan noted during a panel at last month’s Permissionless event that while indexing within crypto remains “super tiny,” he expects the share of indexing in the space to rise from below 1% to 20% or 30% in the next 10 years.&nbsp;



He added that innovation within crypto indexing will likely come in the form of yield strategies, or indexes catering to investors targeting specific sectors.&nbsp;



“You’re going to see the same Cambrian explosion of indexing strategies that allow people to express themselves in crypto without picking individual tokens, which has just a huge amount of idiosyncratic risk…that I think people will be increasingly less comfortable taking,” Hougan said.



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Bitwise, Multicoin Capital Spin Up Metaverse Index and Fund

<div id="highlights-block_623ddfe02ffb2" class="highlights">
 <ul>
 <li>The proposal to broaden the definition of an exchange could help spot bitcoin ETF approval by mid-2023, according to Bloomberg Intelligence analysts</li>
 <li>Bitwise Asset Management Chief Investment Officer Matt Hougan says there is a pathway to approve a spot bitcoin ETF without this change</li>
 </ul>
 
</div>



ETF issuers in the US continue vying to launch a fund that would invest in bitcoin directly, but Bloomberg Intelligence analysts predict one won’t be approved until crypto platforms are forced to comply with Securities and Exchange Commission (SEC) rules.



A rule change proposed by the SEC could be the key to a spot bitcoin ETF approval by the middle of 2023, Eric Balchunas and James Seyffart said in a research note published Thursday.&nbsp;



The SEC proposed to broaden the definition of an exchange in the Securities and Exchange Act of 1934 to include “systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities,” according to a <a href="https://www.federalregister.gov/documents/2022/03/18/2022-01975/amendments-regarding-the-definition-of-exchange-and-alternative-trading-systems-atss-that-trade-us" target="_blank" rel="noreferrer noopener">January 26 filing</a>. 



“Expanding the definition of an exchange could eliminate the agency&#8217;s primary objection to the products by bringing cryptocurrency platforms under the SEC&#8217;s regulatory framework,” the Bloomberg Intelligence ETF analysts wrote.



The SEC most recently delayed its decision to rule on the proposed bitcoin ETFs by NYDIG and Global X earlier this month.



“The commission has consistently required that the listing exchange have a comprehensive surveillance-sharing agreement with a regulated market of significant size related to bitcoin, or demonstrate that other means to prevent fraudulent and manipulative acts and practices are sufficient to justify dispensing with the requisite surveillance-sharing agreement,” the SEC wrote in its March 10 decisions on the NYDIG and Global X applications. “The listing exchange has not met that requirement here.”



The SEC won’t approve a spot bitcoin ETF without new regulation or surveillance agreements between traditional and crypto exchanges, Balchunas and Seyffart explained.



“Traditional exchanges such as the NYSE would find it almost impossible to secure such accords with every exchange that offers bitcoin trading absent official regulation,” they added.&nbsp;



<blockquote class="wp-block-quote">“The proposal to broaden the definition of an exchange would force crypto platforms to comply with SEC rules, potentially satisfying the agency&#8217;s oversight concerns.”</blockquote>



The Bloomberg analysts expect the change to be finalized sometime between November 2022 and May 2023.



<h3>Fund groups weigh in&nbsp;</h3>



Leah Wald, CEO of Valkyrie Funds, said that based on her company’s interactions with regulators, it makes sense that this would be the final hurdle to overcome.



“They have said all along that they would be hesitant to put an unregulated product into a regulated fund wrapper,” she told Blockworks.



<blockquote class="wp-block-quote">“Bringing digital asset exchanges into the fold would remove that objection and likely clear the path for a spot bitcoin ETF.”</blockquote>



Wald said that while it is tough to predict when the SEC could approve such a fund, she does not expect the agency to do so before next summer.



But Matt Hougan, chief investment officer of Bitwise Asset Management, argued that while the redefinition of an exchange could have big implications, there is a pathway to approve a bitcoin ETF without this change.



The SEC&#8217;s rules do not require that the market for the underlying spot commodity be regulated and subject to surveillance agreements prior to approving an exchange-traded product (ETP), he explained. Instead, the agency requires that there is a “regulated market of significant size&#8221; that can be surveilled as a way of gaining proxy surveillance of the market as a whole.



“We and other applicants believe that the CME bitcoin futures market is a ‘regulated market of significant size,’ and believe we have demonstrated this in our applications,” Hougan told Blockworks.



<blockquote class="wp-block-quote">“I continue to think the SEC can and will approve a bitcoin ETF prior to redefining what an exchange is.”</blockquote>



Valkyrie and <a href="https://cms.blockworks.co/bitwise-tries-once-more-for-spot-bitcoin-etp/" target="_blank" rel="noreferrer noopener">Bitwise</a> are among the swathe of issuers that have not been able to get their proposed bitcoin ETPs approved. The SEC, however, has approved several ETFs investing in bitcoin futures contracts, including one from Valkyrie.



Executives at several fund groups <a href="https://cms.blockworks.co/will-bidens-executive-order-speed-up-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">recently told Blockworks</a> they thought President Biden’s <a href="https://cms.blockworks.co/whos-in-charge-of-what-breaking-down-the-crypto-executive-order/" target="_blank" rel="noreferrer noopener">executive order</a> on digital assets could be a bullish indicator for spot bitcoin ETF approval.



Grayscale Investments is trying to convert its Bitcoin Trust (GBTC) to an ETF. <a href="https://cms.blockworks.co/support-for-spot-bitcoin-etf-revs-up-as-agency-holds-course/" target="_blank" rel="noreferrer noopener">Public comments</a> have rolled in from investors and crypto companies executives, many of which supporting the move. The SEC is expected to rule on the conversion by July, after a 240-day review period.



The biggest impact of the redefinition of an exchange, if it occurs, would be on the prospects for non-bitcoin crypto ETFs, Hougan said.&nbsp;



“If Coinbase were regulated and if it could have surveillance techniques in place,” he noted, “you could build ETPs on a wide variety of crypto assets, or crypto index ETFs.



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<hr class="wp-block-separator">

Is a Change to ‘Exchange’ Definition Key to Bitcoin ETF Approval?

Morgan Chittum

<div id="highlights-block_61bb5b0fe3f4e" class="highlights">
 <ul>
 <li>Nexo will partner with Singaporean hedge fund Three Arrows Capital for its lending service</li>
 <li>Bitwise&#8217;s fund will offer direct exposure to prominent collections of NFT art</li>
 </ul>
 
</div>



Cryptocurrency lending platform Nexo will launch its first NFT lending desk in partnership with Singaporean hedge fund Three Arrows Capital, according to a press release on Thursday.



The service will allow Nexo clients to use non-fungible tokens such as Bored Apes and CryptoPunks as collateral. Nexo will only accept NFTs from those specific collections, but the company says more will be continuously added.



Nexo co-founder Antoni Trenchev told Blockworks that although currently the blockchain-based digital collectibles are commonly seen as profile pictures, NFT use cases will expand (and so will their services.)



“An NFT can be anything and can provide so many functions,” Trenchev said. “[In the future,] we’ll be providing loans and financing people’s purchase against anything from digital real estate, to gaming items, or even limited edition Nike sneakers.”



The news follows Nexo’s recent balance sheet acquisition of <a href="https://www.reuters.com/business/finance/new-masters-how-auction-houses-are-chasing-crypto-millions-2021-11-08/" target="_blank" rel="noreferrer noopener">three Bored Ape NFT via Christie’s</a> auction house in October. The NFTs of the cartoon primates were snapped up for $1.3 million by Nexo founder Kosta Kantchev.



Other more established digital assets like bitcoin and ether have long been used to collateralize loans, allowing holders to access fiat currency without having to sell their assets. This week, savings and loan service Ledn <a href="https://cms.blockworks.co/ledn-raises-70m-launches-bitcoin-backed-mortgages/" target="_blank" rel="noreferrer noopener">previewed a new product</a> for clients to back real estate mortgages with bitcoin.



<h3>An NFT Index Fund</h3>



In another novel deployment of NFTs, Bitwise, the world’s largest crypto index fund manager, unveiled their Bitwise Blue–Chip NFT Index Fund on Thursday, according to a <a href="https://twitter.com/Matt_Hougan/status/1471489244824674306?s=20">tweet </a>from CIO Matt Hougan. The fund, which Bitwise calls the first of its kind, will hold collections such as CryptoPunks, Bored Apes, Fidenzas and more.



<figure class="wp-block-image size-large"><img decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/2021-12-16-NFT-Index-1024x535-1.jpg" alt="" class="wp-image-12756"/></figure>



The index will rebalance quarterly and use a market cap weighting scheme based on the floor price (the lowest sale price) of each collection.



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<hr class="wp-block-separator">

Nexo to Launch NFT-Backed Lending; Bitwise Debuts an NFT Index Fund

<div id="highlights-block_618d44d936509" class="highlights">
 <ul>
 <li>Bitwise CIO Matt Hougan cites contango and other complexities as reasons to pull the product proposal </li>
 <li>The San Francisco-based fund group is content to let other firms “fight over whatever scraps are available” in bitcoin futures ETF market, president of The ETF Store says </li>
 </ul>
 
</div>



Bitwise Asset Management withdrew its application to launch a bitcoin futures ETF, the firm’s CIO, Matt Hougan, shared in Twitter posts Wednesday, citing the complexity and costs associated with such a product.



The firm had filed for its <a href="https://www.sec.gov/Archives/edgar/data/0001540305/000089418921006626/bitwise485a.htm" target="_blank" rel="noreferrer noopener">bitcoin strategy ETF</a> in September after US Securities and Exchange Commission (SEC) Chairman Gary Gensler said the agency would favor ETFs under the Investment Company Act of 1940 that are limited to CME-traded bitcoin futures contracts.&nbsp;



ProShares launched the first bitcoin futures-based ETF in the US on Oct. 19, and Valkyrie Investments brought to market a similar offering three days later. The ProShares Bitcoin Strategy ETF (BITO) has grown to nearly $1.3 billion assets under management, while the Valkyrie (BTF) has about $60 million in assets.



<blockquote class="wp-block-quote">“It’s an unsurprising decision and I expect additional withdrawals from other ETF issuers,” Nate Geraci, president of The ETF Store, said of Bitwise’s withdrawal. “I think a much bigger underlying factor in this decision-making is the first-mover advantage the SEC awarded to ProShares.”</blockquote>



VanEck, which <a href="https://cms.blockworks.co/vaneck-ready-to-launch-delayed-bitcoin-futures-etf/">was expected to launch</a> its bitcoin futures ETF last month, has not yet done so. A spokesperson for the firm did not immediately respond to Blockworks’ request for comment on whether or not it still intends to launch the product.&nbsp;



Global X, which <a href="https://cms.blockworks.co/global-x-opts-to-try-to-bring-blended-crypto-etf-to-market/" target="_blank" rel="noreferrer noopener">filed for an ETF in August</a> that would invest in blockchain companies and bitcoin futures, also appears nearly ready to launch, <a href="https://www.sec.gov/Archives/edgar/data/1432353/000143235321000522/a8-axblockchainbitcoinstra.htm" target="_blank" rel="noreferrer noopener">recent filings indicate</a>. A Global X representative declined to comment.



<h3>Why the withdrawal?</h3>



Hougan noted that contango — a situation where the futures price of a commodity is higher than the spot price — is running at about 6% per year.&nbsp;&nbsp;



“Still, we filed our application, as we thought the benefits of the ETF wrapper (convenience, access) would outweigh the contango challenge,” Hougan wrote on Twitter. “Since then, however, new challenges have emerged.”



Though Bitwise initially believed it would be possible to hold both futures and Canadian-listed bitcoin exchange-traded products, that is not currently permitted. Bitcoin futures ETFs have also “soaked up all available capacity at futures commission merchants,” Hougan added, which creates more expenses.&nbsp;



<blockquote class="wp-block-quote">“The result? Costs on top of costs, plus added complexity,” Hougan wrote in the Twitter thread. “None of this means that futures-based ETFs are bad, and<a href="https://twitter.com/search?q=%24BITO&amp;src=cashtag_click"> </a>BITO and BTF are thoughtful versions. But we believe most long-term investors would be better served by spot exposure, and today, there are many options for getting spot-based exposure — including other Bitwise funds.”</blockquote>



Bitwise offers <a href="https://cms.blockworks.co/qa-why-bitwise-believes-indexing-is-a-superior-crypto-strategy/" target="_blank" rel="noreferrer noopener">a range of offerings</a>, including the <a href="https://www.bitwiseinvestments.com/funds/Bitwise-10" target="_blank" rel="noreferrer noopener">Bitwise 10 Crypto Index Fund</a>, which was the world’s first crypto index fund. The company launched the Bitwise Crypto Industry Innovators ETF (BITQ) in May, which tracks a modified market-cap-weighted index of global companies supporting a crypto asset-enabled decentralized economy. The fund has $125 million assets under management.



The firm <a href="https://cms.blockworks.co/bitwise-tries-once-more-for-spot-bitcoin-etp/" target="_blank" rel="noreferrer noopener">most recently filed</a> to launch the Bitwise Bitcoin ETP Trust. Bitwise had previously filed for a physically backed bitcoin ETF in 2019, but withdrew its request in January 2020 amid SEC concerns.



As part of the latest filing, the fund group published its findings — roughly 150 pages of data-driven research that it hopes will help the product gain approval.



“The bitcoin futures ETF market has a natural cap given that investors really want a spot bitcoin ETF,” Geraci told Blockworks. “I think an issuer like Bitwise is content to focus on that bigger prize and let other issuers fight over whatever scraps are available in the bitcoin futures ETF market.”


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Bitwise Withdraws Application for Bitcoin Futures ETF

<div id="highlights-block_61682bbf3ef1f" class="highlights">
 <ul>
 <li>Crypto asset manager’s latest filing includes 150 pages of research addressing SEC’s questions about bitcoin price discovery</li>
 <li>A physically backed bitcoin ETF will ultimately take the majority of assets compared to futures-based ETFs, Bitwise CIO Matt Hougan tells Blockworks</li>
 </ul>
 
</div>



Bitwise Asset Management <a href="https://www.sec.gov/Archives/edgar/data/1763415/000138713121009995/bbet-s1_101421.htm" target="_blank" rel="noreferrer noopener">has filed</a> 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.&nbsp;



Bitwise CIO Matt Hougan <a href="https://cms.blockworks.co/qa-why-bitwise-believes-indexing-is-a-superior-crypto-strategy/" target="_blank" rel="noreferrer noopener">said in August</a> 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.&nbsp;&nbsp;



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.&nbsp;



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 <a href="https://cms.blockworks.co/vaneck-ceo-hopes-sec-will-make-that-leap-in-approving-its-bitcoin-etfs/" target="_blank" rel="noreferrer noopener">VanEck’s bitcoin ETF application</a> 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.&nbsp;



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



<h3>Futures vs. spot ETF</h3>



The filing comes after Bitwise filed for a <a href="https://www.sec.gov/Archives/edgar/data/0001540305/000089418921006626/bitwise485a.htm" target="_blank" rel="noreferrer noopener">bitcoin strategy ETF</a> in September that focuses on bitcoin futures contracts.&nbsp;&nbsp;



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.&nbsp;



<blockquote class="wp-block-quote">“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.&nbsp;</blockquote>



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 <a href="https://cms.blockworks.co/a-futures-based-bitcoin-etf-could-be-suboptimal-heres-why/" target="_blank" rel="noreferrer noopener">complications</a> 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.”

Bitwise Tries Once More for Spot Bitcoin ETP

Sam Martin

<h2></h2>


<div id="highlights-block_6154e0881ed24" class="highlights">
 <ul>
 <li>Flourish Crypto will give independent Registered Investment Advisers (RIAs) a simple, secure and compliant way to offer direct bitcoin exposure to their clients</li>
 <li>The MassMutual-owned firm aims to provide RIAs with the flexibility needed for trades, transfers, billing and integrations to open up an emerging asset class to a new demographic of investors</li>
 </ul>
 
</div>



Today, there is immense competition in the field of wealth management with robo-advisors, trading firms and other competitors constantly expanding their product offerings to compete with traditional independent Registered Investment Advisers (RIAs).



Historically RIAs have been forced to sit on the sidelines and watch capital flow out of their sphere of control, but Flourish Crypto — the digital asset partner to Flourish Cash — intends to change that by allowing RIAs to take part in the rapidly emerging crypto industry.



Flourish Cash, a cash management account for individuals and RIAs that yields 0.24% in an FDIC insured account, currently handles over $1 trillion in assets under management. Roughly 400 RIAs currently use their product offerings.



As a subsidiary of insurance giant MassMutual, Flourish Crypto hopes to empower these RIAs to offer their clients exposure to digital assets.&nbsp;



<blockquote class="wp-block-quote">“Investment advisors are really left with three choices when their clients ask them how to gain exposure to digital assets,” Ben Cruikshank, head of Flourish, told Blockworks. “Either recommend an investment vehicle that often trades at discounts or premiums to NAV with high management fees, tell them to go to a retail exchange where they would no longer generate any revenue for managing their money, or simply tell them it is not an option.”&nbsp;</blockquote>



Initially bitcoin will be the only asset available for trade, but the hope is to make ether available to clients over the coming weeks.



Based on overwhelming feedback from potential users, Flourish opted to vet different custodial providers to take ‘physical’ possession of their clients’ crypto assets.



This is where Paxos comes in. As the custodian for Flourish Crypto, Paxos is required to hold all customer assets bankruptcy-remote and separate from corporate assets. Paxos is one of the few companies in the crypto industry that meets both <a href="https://paxos.com/2021/03/02/paxos-is-first-company-to-secure-soc-2-type-2-certification-across-suite-of-crypto-products-and-services/" target="_blank" rel="noreferrer noopener">SOC 1 Type 2 and SOC 2 Type 2</a> standards, and the first company to secure a <a href="https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1505071" target="_blank" rel="noreferrer noopener">New York State Department of Financial Services Trust Charter for Digital Assets</a>, in 2015.&nbsp;&nbsp;&nbsp;



In addition, a vast majority of retail exchanges today do not provide 1099’s to their users in order to help them file their taxes. This is also where Flourish feels they can differentiate themselves and open up crypto to an entirely new demographic of investors, according to Cruikshank.



Tim Corbett, CIO at MassMutual, said in a statement released today: “We decided that it was imperative to invest in cryptocurrency itself and to begin to lay the groundwork for ways we can incorporate it into our business. This includes offerings and technology initiatives across the company, such as today’s launch of Flourish Crypto — a cryptocurrency investing solution built for Registered Investment Advisors (RIAs) and their clients.”



It’s not only MassMutual that sees the opportunity for crypto and RIAs.&nbsp;



Matt Hougan, chief investment officer, Bitwise, <a href="https://cms.blockworks.co/qa-why-bitwise-believes-indexing-is-a-superior-crypto-strategy/" target="_blank" rel="noreferrer noopener">previously told</a> Blockworks that the financial advisor market is a huge opportunity for the digital asset industry and growing fast.



“By most estimates it’s as large as the institutional market, and it’s many times larger than the self-directed retail market,” said Hougan. “It’s a hard market to serve in that it requires education and support and a national distribution team, but I do think the crypto industry has perhaps been overfocused on the institutional market and not on the advisor market, which built a huge swathe of the ETF ecosystem into the multi-trillion-dollar market that it is today. That’s one fact that I think is not commonly understood.”

MassMutual’s Flourish Crypto to Give RIAs Direct Bitcoin Exposure

<div id="highlights-block_614cd2425e335" class="highlights">
 <ul>
 <li>Blockchange CEO said he expects a vast majority of assets will be tokenized in the next five to 10 years</li>
 <li>Latest alliance builds upon Blockchange’s relationship with Gemini Trust Company</li>
 </ul>
 
</div>



Blockchange has partnered with Equity Trust Company to allow financial advisors and asset managers to bring digital assets to the retirement accounts they serve. 



The San Francisco-based company’s platform, BITRIA, enables asset managers, registered investment advisors (RIAs) and financial advisors to offer 40 different digital assets to their clients as another form of professionally managed investments. Equity Trust is one of the largest alternative asset custody providers for retirement accounts.



The latest partnership builds upon Blockchange’s relationship with Gemini Trust Company, which facilitates custody of digital assets for its platform users, as Equity Trust will allow Blockchange customers account custody services for digital assets in tax-advantaged IRAs.



“IRAs comprise a large portion of RIAs&#8217; AUM, so the Equity Trust integration with Blockchange paves the way for more investors to enjoy the benefits of the crypto marketplace,” Dave Abner, Gemini’s global head of business development, said in a statement.



Blockchange CEO Dan Eyre said that one thing traditional finance does well is customer service, an attribute he noted is currently lacking in the digital assets space.



<blockquote class="wp-block-quote">“When you look at how the market is evolving, there hasn’t been a lot of interest yet in advisors, fiduciaries, asset managers … because they’re almost the highest regulated industry out of all of them,” he told Blockworks in an interview. “When they go into an endeavor like this … they’re expecting certain things to be in place, and if those things aren’t in place it feels very risky for the organization.”</blockquote>



The alliance with Equity Trust allows for transfers to happen in less than a week compared to wait times to get invested of 30 to 45 days with other IRA custodians in the space, Eyre said.



Equity Trust&#8217;s integration with BITRIA provides IRA holders with incoming funds transfers through Automated Customer Account Transfer Service (ACATS) in less than a week. This compares to wait times of 30 to 45 days with other IRA custodians in the space, Eyre said, adding that moving as fast as possible is critical in a volatile asset class.



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="370" height="260" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/Dan-Eyre-copy-pdjtowwmveb7cynz698ng5n783sap6lm3b47bsouy0-1.jpeg" alt="Dan Eyre, Blockchange" class="wp-image-8502" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/Dan-Eyre-copy-pdjtowwmveb7cynz698ng5n783sap6lm3b47bsouy0-1.jpeg?w=370 370w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/Dan-Eyre-copy-pdjtowwmveb7cynz698ng5n783sap6lm3b47bsouy0-1.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/Dan-Eyre-copy-pdjtowwmveb7cynz698ng5n783sap6lm3b47bsouy0-1.jpeg?w=366 366w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/Dan-Eyre-copy-pdjtowwmveb7cynz698ng5n783sap6lm3b47bsouy0-1.jpeg?w=312 312w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/Dan-Eyre-copy-pdjtowwmveb7cynz698ng5n783sap6lm3b47bsouy0-1.jpeg?w=80 80w" sizes="(max-width: 370px) 100vw, 370px" /><figcaption>Dan Eyre, CEO, Blockchange</figcaption></figure></div>



&#8220;As the demand for cryptocurrency and other digital assets continues to surge, it&#8217;s advantageous for advisors to be prepared with a solution for clients who want to diversify into this asset class,” Equity Trust CEO George Sullivan said in a statement.



Matthew Hougan, chief investment officer of Bitwise Asset Management, <a href="https://cms.blockworks.co/qa-why-bitwise-believes-indexing-is-a-superior-crypto-strategy/" target="_blank" rel="noreferrer noopener">previously told Blockworks</a> that the financial advisor and RIA market is the next big market to move into crypto, but that they require a lot of education and support to navigate the asset class. He noted at the time that he believes the crypto industry has been a bit overfocused on the institutional market.



Eyre said he believes that a vast majority of assets will be tokenized in the next five to 10 years, and advisors will need the tools to access those tokenized assets in a compliant and packaged way.



“We want to create that layer that advisors use to engage with the tokenized economy,” he added. “We have all of those in place today for crypto and digital assets as we know them now, but that’s just the tip of the spear for the coming wave of tokenized assets that we see advisors and their clients having great demand for.”



<hr class="wp-block-separator"/>



Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



<hr class="wp-block-separator"/>

Blockchange Partners with Equity Trust to Bring Digital Assets to Financial Advisors

<div id="highlights-block_6141015bf959c" class="highlights">
 <ul>
 <li>Bitwise’s Matt Hougan said NFTs can expand beyond JPEGs of “digital rocks”. NFTs can revolutionize digital property rights</li>
 <li>Ikigai’s Kling believes that NFTs are “highly unlikely to go away” and will be a “major part of everybody’s life&#8221;</li>
 </ul>
 
</div>



Digital Asset Summit 2021, New York City — The non-fungible tokens (NFT) craze has taken the world by storm. In recent months, certain NFTs have sold for <a href="https://www.gq-magazine.co.uk/culture/article/beeple-nft-interview" target="_blank" rel="noreferrer noopener">$69 million</a>, along with their marketplaces such as <a href="https://cms.blockworks.co/opensea-hits-3b-in-monthly-nft-volume/" target="_blank" rel="noreferrer noopener">OpenSea</a> reporting monthly trading volumes of over $3 billion.



Skeptics question why someone would pay a large sum of money for what appears to be a digitized image, but Ikigai Asset Management Founder Travis Kling described holding the asset similar to “owning a layer of innovation” during a panel at the <a href="https://cms.blockworks.co/events/digital-asset-summit-2021-2/" target="_blank" rel="noreferrer noopener">Digital Asset Summit</a> Tuesday.&nbsp;



“If you&#8217;re heading in that direction, where people are spending more and more time in the digital world, then you&#8217;re going to start somewhere [and that’s with NFTs],” Kling said.



<div class="wp-block-image"><figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="600" height="399" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/20210914_Blockworks_DAS_597.jpg" alt="Panel at Digital Asset Summit 2021" class="wp-image-7946" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/20210914_Blockworks_DAS_597.jpg?w=600 600w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/20210914_Blockworks_DAS_597.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/20210914_Blockworks_DAS_597.jpg?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/20210914_Blockworks_DAS_597.jpg?w=392 392w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/20210914_Blockworks_DAS_597.jpg?w=329 329w, https://blockworks-co.imgix.net/wp-content/uploads/2021/09/20210914_Blockworks_DAS_597.jpg?w=80 80w" sizes="(max-width: 600px) 100vw, 600px" /><figcaption>From left: Travis Kling, Ikigai; David Grider, Grayscale; Matt Hougan, Bitwise; Blockworks Digital Asset Summit 2021: Source: Photo by Mike Lawrence</figcaption></figure></div>



In the session, featuring Horizon Kinetics’ Peter Doyle and Grayscale’s David Grider, panelists touched on the future of the asset class as well, discussing its potential capabilities.&nbsp;



Matt Hougan, Chief Investment Officer of Bitwise Asset Management, said NFTs are far more than just “digital rocks”. They can revolutionize digital property rights. “As goofy as [paying] $3 million for a digital rock may seem, these are just the first instantiation of digital property rights,” he said.&nbsp;



Although NFT use cases are most commonly associated with the arts and entertainment industries, the same framework can transfer to healthcare as well. Using NFTs via a decentralized ledger and blockchain networks, holders can track health data like pharmaceutical drugs and blood donations, making tracking medical records potentially faster and more efficient.&nbsp;



“[NFTs] are the beginning of something that I think is highly unlikely to go away. In the future, I believe it’s going to be a major part of everybody’s life,” Kling said.



<hr class="wp-block-separator"/>



<meta charset="utf-8">Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a> in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket. <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



<hr class="wp-block-separator"/>

DAS 2021: Owning an NFT is Like Owning a ‘Piece of Innovation’

Jacquelyn Melinek

<div id="highlights-block_613a1f8e3da79" class="highlights">
 <ul>
 <li>The fund constituents are Ethereum, Cardano, Solana, Bitcoin Cash, Chainlink, Litecoin, Uniswap, Polygon and Stellar</li>
 <li>After most investors wrap their mind around bitcoin, they become excited about the potential for everything else in crypto, said Hunter Horsley, Bitwise CEO</li>
 </ul>
 
</div>



The world’s largest crypto index fund manager Bitwise Asset Management has launched its “Bitwise 10 ex Bitcoin Crypto Index Fund,” which is the first large-cap crypto index fund to provide investors exposure to developments in cryptomarket beyond bitcoin.&nbsp;



The new fund aims to address investor demand for exposure into other cryptocurrencies beyond bitcoin, the company said. As bitcoin’s share of the total market capitalization has fallen in the past year, other cryptocurrencies like Ethereum, Cardano and Solana have grown in size and importance, it said.&nbsp;



<blockquote class="wp-block-quote">“Most investors and most people encounter bitcoin first,” Hunter Horsley, CEO and co-founder of Bitwise said in an interview with Blockworks. “But most people, after they wrap their head around bitcoin, become excited about the potential for everything else (in crypto),” Horsley added.&nbsp;</blockquote>



The company is best known for managing the world’s largest and longest-running crypto index fund (OTCQX: BITW) as well as the world’s first DeFi index Fund, formally known as the Bitwise DeFi Crypto Index Fund.&nbsp;



Bitwise has over $1.3 billion in assets under management as of August 31 and shared a valuation of over $500 million as of mid-June when it closed a $70 million Series B funding round, Blockworks previously <a href="https://cms.blockworks.co/bitwise-raises-70m-valuation-totals-over-500m/" target="_blank" rel="noreferrer noopener">reported</a>.&nbsp;



“This launch is being driven by customer demand,” said Matt Hougan, chief investment officer at Bitwise. “Many investors today have exposure to bitcoin but are excited by the dynamic developments taking place around other assets. That’s particularly true for professional investors, who value the utility these assets offer. This new fund allows investors to complement their existing bitcoin exposure with a professionally managed solution that captures other large-cap crypto assets,” Hougan added.



The Bitwise 10 ex Bitcoin Crypto Index Fund consists of nine of the 10 cryptocurrencies that make up the over $1 billion flagship Bitwise 10 Crypto Index Fund, excluding bitcoin. The constituents for the fund are Ethereum, Cardano, Solana, Bitcoin Cash, Chainlink, Litecoin, Uniswap, Polygon and Stellar.&nbsp;



The nine cryptocurrencies range in market capitalization from $8 billion to $427 billion, and include many of the assets that play a role in the emerging crypto spaces of DeFi, smart contract, and NFT ecosystems, Bitwise said.&nbsp;



The fund follows a formal <a href="https://bitwiseinvestments.com/indexes/methodology" target="_blank" rel="noreferrer noopener">methodology</a> and is weighted by market cap in addition to screening around liquidity, custody and regulatory risks, among other elements.&nbsp;



Additionally, the fund’s assets are custodied with Coinbase Custody Trust Company, which is the world’s largest crypto custodian.&nbsp;



The new fund is available to accredited investors as a private placement, and comes in two share classes: Investor Shares, which have a $25,000 minimum and charge a 2.5% expense ratio, and Institutional Shares, which have a $1,000,000 minimum and charge a 2.0% expense ratio.



Are you a UK or EU reader that cant get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.

Bitwise Launches New Crypto Index Fund for Exposure Beyond Bitcoin

<div id="highlights-block_b9c3d4d06e70b23863a78c8b946db210" class="highlights">
 <ul>
 <li>Crypto industry has “perhaps been over-focused on the institutional market,” Hougan tells Blockworks</li>
 <li>Bitwise has most recently launched funds investing directly in the tokens of DeFi protocols Uniswap and Aave and an ETF investing in crypto economy innovators </li>
 </ul>
 
</div>



<a href="https://www.bitwiseinvestments.com" target="_blank" rel="noreferrer noopener">Bitwise Asset Management</a> is one of the growing number of crypto fund firms continuing to bring to market investment products that offer investors exposure to a new asset class.&nbsp;



As part of Blockworks’ series of Q&amp;As with fund managers in the space, I recently spoke with Matt Hougan, the firm’s chief investment officer, about Bitwise’s focus on serving financial advisors, its newest crypto ETF, its approach to indexing and the long-awaited physical bitcoin ETF that US regulators have not yet greenlit.



Bitwise’s flagship fund, the <a href="https://www.bitwiseinvestments.com/funds/Bitwise-10" target="_blank" rel="noreferrer noopener">Bitwise 10 Crypto Index Fund</a> was the world’s first crypto index fund and is also the largest. The company launched a DeFi index fund in February and earlier this month introduced funds that invest directly in the native tokens of DeFi protocols Uniswap and Aave.&nbsp;&nbsp;



Before becoming Bitwise’s CIO last October, Hougan spent nearly three years as the asset manager’s global head of research and was chairman of event company Inside ETFs during that time. Earlier in his career, he spent nearly a decade at ETF.com in the roles of global head of editorial, president and ultimately CEO.



Let’s get the Q&amp;A started:



Strack: What type of investor is Bitwise targeting with its investment offerings?



Hougan: A lot of the crypto ecosystem grew up focusing on self-directed retail investors &#8211; you can think of Coinbase and Kraken and other brokerages. Parts of the crypto ecosystem focused on pensions and endowments and other large institutions, so you can think of <a href="https://a16z.com/crypto/" target="_blank" rel="noreferrer noopener">[a16z] Crypto</a>.&nbsp;



Bitwise is focused exclusively on serving the financial advisor and RIA market, which we believe is the next big market to move into crypto. That’s reflected both in the funds we’ve developed and continue to develop, and in the structure of the company and how we support those funds with research, education and an advisor support team.



The financial advisor market is huge. By most estimates it’s as large as the institutional market, and it’s many times larger than the self-directed retail market. &#8230;It’s a hard market to serve in that it requires education and support and a national distribution team, but I do think the crypto industry has perhaps been overfocused on the institutional market and not on the advisor market, which built a huge swathe of the ETF ecosystem into the multi-trillion-dollar market that it is today. That’s one fact that I think is not commonly understood.



Strack: Aside from investment offerings, what else does Bitwise provide for advisors?



Hougan: We produce regular research that arms advisors to answer the questions that their clients have. And then we have a 15-person distribution team located around the country that’s meeting face-to-face with advisors. I think a lot of advisors are somewhat intimidated to go into crypto because they know that their clients know a lot about it.&nbsp;



They need to have a good answer if their client calls them up and says, ‘what’s <a href="https://notes.ethereum.org/@vbuterin/eip-1559-faq" target="_blank" rel="noreferrer noopener">EIP-1559</a> and how will it influence the Ethereum market?’ If the client calls them and asks, ‘Is Cardano or Solana going to seriously threaten Ether’s position as a layer 1 solution?’ they need to have an answer. Most advisors don’t have that at their fingertips, the way they would if you called them and asked them about the outlook for the US economy. So we’re set up to serve them, and I think that’s resonating and making a lot of them more comfortable to come into the market.



Strack: Why has Bitwise focused its efforts on index products?



Hougan: Crypto index funds are a good solution for advisors because many of them are making an allocation to client accounts at a relatively small percentage of the portfolio — let’s say 1%, 2%, maybe 5% of the portfolio. But those advisors just want to make sure they’re participating in the potential upside of crypto in a professionally managed product.&nbsp;



They don’t want to make any individual active bets. They don’t want [do due diligence on] different active managers. They just want to know they have exposure to the market.



I think [indexing] is an even better strategy in crypto than it is in equity or bonds. This is a disruptive new market and it’s difficult to forecast exactly how it will turn out, but the data historically has been very strong. So taking a broad-based bet is a great solution for many investors. The worst thing you can do, particularly as an advisor, is to bet right on the market but bet on the wrong horse, and lose.&nbsp;



Before costs, indexing is an average strategy in equity, and it wins because it’s the lowest-cost way to allocate into the market. But in the crypto market, there’s something different at work; all of crypto is a network-effect business. In other words, the fact that bitcoin is the largest asset means it’s the most liquid asset, has the most robust regulatory framework, is likely to get the first ETF. The fact that Ethereum is the largest DeFi layer-1 protocol means it has the most developer activity and means it has the most liquidity.&nbsp;



&#8230;So basing your allocation based on size can help you orient toward protocols and crypto assets that have built-in advantages over their smaller competitors that are hard to assail.



Strack: How does the firm construct its indexes?



Hougan: I think a lot of people hear index and they think you just take the largest assets, rank them and allocate and it should take you all of about 15 minutes.&nbsp;



&#8230;There are two levels to index construction. One level [is] you want to make sure you own the largest assets in a market-cap weighted fashion, because what you want to offer investors is a promise that if crypto is bigger in the future than it is today you’ll have exposure to the assets that are leading that. The only way to do that is in an uncapped market-cap weighted index.



We screen out assets that can’t be custodied with institutional custodians. We screen out assets that we deem to be an undue risk of potentially being in violation of federal securities laws. We screen out assets that appear illiquid, and importantly we do this on an ongoing basis.



A lot of what advisors trust us to do is stay up to speed on what’s going on in the market and react to news so that they don’t have to, so the indexes are heavily monitored and have these screening rules in place to do that.



Strack: Why did the firm choose to launch the <a href="https://bitqetf.com" target="_blank" rel="noreferrer noopener">Bitwise Crypto Industry Innovators ETF</a> (BITQ) and what differentiates it from competing products?



Hougan: It’s not the long-awaited bitcoin ETF — we’re still working on that — but it’s the first ETF to offer pure-play exposure to the crypto market. We did that, again, to serve the advisor market, because for many advisors, as great as funds like the Bitwise 10 are, they don’t fit into their workflow in the same way that an ETF would.



There’s actually a rule called the Investment Companies Names Act, and that rule states that you can’t have a word in the name of your fund or ETF unless at least 80% of the portfolio has pure-play exposure to that word or name or theme.



It was the first ETF with crypto in its name, and that’s not because other ETFs I think didn’t want to have crypto in their name. It’s the first ETF where the index is designed such that 80% of the portfolio is always invested in pure-play crypto companies, and not companies that do blockchain on the side.



<blockquote class="wp-block-quote">
You can have any ticker you want, so you can’t judge an ETF by its ticker, but you can judge it by its name. And I think if you look at some of the competing ETFs, you may see they have some very funky names. They may have crypto-related tickers, but look at the name carefully. It’s a cool decoder ring for evaluating competing ETFs.
</blockquote>



Strack: How important is a bitcoin ETF? Where is Bitwise in terms of its process to offer one?



Hougan: People who are in the crypto industry don’t realize how important plumbing and practicality is to financial advisors. If you’re using a private fund as a financial advisor and you want to allocate to crypto and you have 100 clients and you want to rebalance, you may have to send 100 separate wires. Advisors are busy people, and it’s much easier for them with an ETF just to be able to push a button and rebalance or allocate.



We’ve met with the [SEC] I think a dozen times in the last 16 months discussing the crypto market and the bitcoin market and presenting research, and the questions they’re asking are smart and they’re appropriate.



We had a filing, it was disapproved, we withdrew it and we’ve still been working on it. We aren’t going to file until we feel confident that such a filing is likely to be approved&#8230;and we don’t think we’re there yet.



Strack: When do you expect the SEC might approve a bitcoin ETF?



Hougan: People in the crypto market are hugely frustrated with the slow pace of the SEC approving a bitcoin ETF, but if you look back over other novel categories of ETFs, you know that it was tough to get those approved as well. Nontransparent active ETFs were at the SEC for a decade. Even bond ETFs … were in the SEC for multiple years. Gold ETFs were a major effort. Leveraged ETFs I think took six or seven years.&nbsp;



So anytime you’re opening up a new category, the SEC asks good questions, they’re very diligent, they’re focused on investor protection, and eventually in most cases, if the market is appropriate for it you can get there. &#8230;I do think we’re closer than we’ve ever been before, but I’m not going to give you a date.



To read Blockworks’ last fund manager Q&amp;A, <a href="https://cms.blockworks.co/qa-how-off-the-chain-capital-has-outperformed-bitcoin/" target="_blank" rel="noreferrer noopener">click here</a>. Also be sure to check out Blockworks co-founder Jason Yanowitz’s <a href="https://www.youtube.com/watch?v=CnhlhXsB8Eo" target="_blank" rel="noreferrer noopener">recent interview</a> with Hougan, during which the Bitwise CIO delves deeper into DeFi.