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There’s no bitcoin ETF — yet. But pressure is building on the U.S. Securities and Exchange Commission, with no fewer than nine requests to create such ETFs already filed with agency. The most recent was from Cathie Wood, founder and CEO of Ark Invest. Her firm proposes to create the ARK 21Shares Bitcoin ETF.
Contrarians are worried that a bitcoin exchange-traded fund would be bearish for the cryptocurrency. They should worry about other things.
It’s understandable why contrarians would be concerned about this spate of filings to create bitcoin ETFs. It typically reflects extreme bullishness when there is high demand for even one new ETF, much less nine, and contrarians interpret such an extreme to be bearish. For example, recent news that brokerage Robinhood Markets
HOOD,
will go public had some contrarians wondering if this was “the end of the meme trade.”
While certainly there are times when a market top coincided with widespread enthusiasm, there are plenty of other cases where it didn’t. One such example was provided to me by Claude Erb, a former commodities portfolio manager at TCW Group. In an interview, he pointed out that the November 2004 launch of the SPDR Gold Trust
GLD,
which is perhaps most analogous to these new bitcoin ETFs, came early in a long-term and bullish market for gold. (See chart below.)
This doesn’t mean the potential launch of these new bitcoin ETFs will usher in an equally long bull market for the cryptocurrency. But GLD’s history reminds us that such a launch isn’t automatically bearish.
Grayscale Bitcoin Trust
Another reason to question the contrarian reaction to these possible new bitcoin ETFs: Investors already are able to invest in bitcoin via the Grayscale Bitcoin Trust
GBTC,
The trust, which currently has more than $22 billion in assets under management, is the 800-pound gorilla in this space.
GBTC is not structured as an ETF, and so has no built-in mechanism to keep its price from deviating significantly from its net asset value. But it’s not clear that this has dissuaded investors from purchasing it. Meanwhile, a Canadian-listed bitcoin ETF that began trading in February, the Purpose Bitcoin ETF
BTCC,
has gathered US$773 million in assets under management so far.
Other considerations
Two other considerations to keep in mind if a bitcoin ETF receives SEC approval. One is that ETF transactions are reported to the IRS, unlike many cryptocurrency transactions. According to the U.S. Treasury, underreporting of cryptocurrency transactions is widespread.
Another consideration is that, as an investor in one of these possible new ETFs, you must trust that its managers have actually purchased and securely stored the bitcoin that they claim to have bought. I discussed this issue of trust in a recent column.
You may not be worried about this trust issue. But I bring it up nonetheless because one of the foundational arguments made in favor of bitcoin and other cryptocurrencies is that the trust on which they depend is anonymous and decentralized. Buying into one of these possible new bitcoin ETFs could leave you without that foundation.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
More: What it might take to convert the largest bitcoin fund into an ETF
