Exchange-traded funds (ETFs) are all the rage, giving investors a wider reach into the financial securities that are traded globally. Cryptocurrencies have been trying to make their way into ETFs, which would be a boon for upcoming ICOs whose digital tokens eventually trade on their own value. Regulators, however, keep pushing back. Most recently the US SEC has rebuffed a pair of potential bitcoin ETFs that would have likely ignited a fire for hedge fund investors who haven't taken the plunge into cryptocurrencies.
The proposed bitcoin ETFs are dubbed the REX Bitcoin Strategy ETF and the Rex Short Bitcoin Strategy ETF. And while these funds would target bitcoin futures, upcoming ICOs could still benefit. The wider the path that bitcoin and other leading cryptocurrencies are able to pave, the better the future could be for upcoming ICOs with a viable digital currency whose value could eventually be independent of the issuer’s ecosystem.
More specifically the REX ETFs would gain expsoure to both long and short trading activity via bitcoin derivatives. Shorting is a bet on a price decline and is a common strategy among hedge funds. The ETFs would have traded on the CBOE's Bats exchange. And while it's bitcoin today, the underlying cryptocurrency could be Ripple tomorrow, or Ethereum, or some other cryptocurrency that has yet to rise from its upcoming ICO.
In a letter dated Oct. 5, the regulator body said that it “respectfully requests the withdrawal” of those applications, citing a policy that it’s not the regulator’s policy “to review a registration statement for a fund where the underlying instruments in which the fund intends to primarily invest are not yet available.”
The SEC, however, did offer a glimmer of hope to REX and upcoming ICOs. The regulatory body suggested it would entertain an ETF application when bitcoin futures contracts, which are the financial instruments in which the funds would gain exposure to, have begun trading in the markets. Basically, it’s premature for the SEC to approve an investment before bitcoin futures have been invented. Fair point.
Eric Balchunas said at a Bloomberg ETF event that’s unfolding now that “ETFs are not an asset class. They are just a different way of holding stocks.” Cryptocurrencies, meanwhile, have evolved into their own asset class and there is curiosity and demand among investors to hold them in ETFs.