With Deadline Looming, Will The SEC Approve A Bitcoin ETF?


These are the show notes for the Unchained podcast. Listen to my whole interview with Spencer and Daniel here or on Google Play, iTunes, Stitcher or TuneIn Radio.

Tyler and Cameron Winklevoss, the twins known for their dispute with Mark Zuckerberg of Facebook and for their careers as Olympian rowers, are now proponents of bitcoin.

They run the cryptocurrency exchange Gemini and have made investments in companies like 21 and Xapo through their investment fund Winklevoss Capital. (Learn more about their journey with bitcoin on my podcast Unchained via the show notes and the episode.)

Three-and-a-half years ago, they filed with the Securities and Exchange Commission to offer a bitcoin exchange-traded fund, or ETF, named the Winklevoss Bitcoin Trust, to trade under the ticker symbol COIN. The proposal has been updated around a couple dozen times, and the SEC has asked for public comments more than once and repeatedly extended the timeline on its decision.

Having run out of extensions, the SEC will make a call one way or another by March 11. Many in the bitcoin and cryptocurrency community are bullish on the prospects for approval, while others are not. This week, on my podcast, Unchained, a bitcoin ETF optimist and pessimist discuss the likelihood of SEC approval (Google Play, iTunes, Stitcher or TuneIn Radio) — and along the way, touch upon bitcoin’s liquidity, what impact recent events in China have had on its trading, as well as proposals for bitcoin ETFs by other companies. They also describe what effect approval could have on the market for the cryptocurrency.

Spencer Bogart, vice president of equity research at Needham Company, and Daniel Masters, director of Global Advisors

Spencer Bogart, vice-president of equity research at Needham Company, is the bitcoin ETF Eeyore of the episode. “I think we need to take into heavy consideration the general conservativeness of the SEC,”  he says. “If you think of this just from a game theory aspect, if I work at the SEC and I approve this ETF and a lot of money flows into it and something goes wrong, there’s a very good chance I could lose my job over that. If I do approve and it goes extremely well, it’s very unlikely someone comes around to pat me on the back or give me a promotion.”

In a report released in early January, Bogart put the likelihood of SEC approval at 25% or less. In the episode, he also notes, “The very first task mentioned in the SEC’s mission statement is to protect investors, and the very last thing they mention is to facilitate capital formation.”

The episode’s bitcoin ETF Pollyanna is Daniel Masters, director of Global Advisors, which launched the Global Advisors Bitcoin Investment Fund, the world’s first fully regulated bitcoin investment vehicle in 2014. Global Advisors also owns XBT Provider, an issuer of Nasdaq Nordic-listed bitcoin tracking certificates.

Masters, who sees parallels in bitcoin to the early days of the commodities super cycle, says a number of the concerns around bitcoin have been addressed, such as its use in illicit activity, anti-money laundering issues, as well as questions around security.

Many of those risks have been ameliorated, counteracted and addressed by things like the [New York Department of Financial Services] regulatory regime [aka the Bitlicense, which is regulation specifically designed for cryptocurrency firms], by the anti-money laundering provisions that pretty much every decent [cryptocurrency] exchange has in place, which in some cases rise to the level of opening a banking account in terms of identification.” He also notes that sophisticated protocols and new hardware modules used for so-called cold storage, the process by which bitcoins are secured offline so as to protect them from theft and hacking, should also address security concerns.

“There are enough serious people — banks, regulators, technology companies — all sorts of different players now in the space doing sensible things,” Masters says.

In the episode, we also discussed issues with bitcoin’s liquidity, especially now that trading volume plunged after Chinese regulators cracked down on cryptocurrency exchanges in China, prompting three big exchanges to stop offering free trades and impose fees. “You have to pick poison here,” says Masters. “Are you concerned there isn’t enough bitcoin trading to support a bitcoin ETF because some of that is in China or are we now happy that the volume is much less in China and therefore it’s now more evenly balanced across the West?”

He personally thinks concerns about liquidity are overblown. Speaking of Global Advisors, he says, “We’re in the markets every single day — our assets are $40 million under management, and we have no problem moving those kinds of volumes around to suit our clients needs and perfect our hedging strategies.”

Bogart agrees: “There are certainly ETFs whose underlying markets are less liquid than bitcoin.”

Tune in to the episode (Google Play, iTunes, Stitcher, TuneIn Radio or web) to find out why Bogart thinks that SEC approval of a bitcoin ETF could cause at least $300 million in assets to flow into bitcoin in the first week (bitcoin’s current market capitalization is almost $17 billion); why Masters isn’t at all worried about liquidity for bitcoin; which of the bitcoin ETF filings the two think is best poised to win approval; and whether or not traditional ETF issuers will get in the game.

These are the show notes for the Unchained podcast. Listen to my whole interview with Spencer and Daniel here or on Google Play, iTunes, Stitcher or TuneIn Radio.

Laura Shin hosts the Unchained podcast (Google PlayiTunes, StitcherTuneIn) and wrote The Millennial Game Plan. Disclosure: I own some bitcoin and ether.

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