According to Eric Balchunas, senior ETF analyst for Bloomberg, a bitcoin futures ETF would have a 75% chance of being approved in the US by the end of October.
Examples of legislation for a Bitcoin Futures ETF
Yes, the SEC has kicked can on bitcoin ETF approval BUT that is for the physically-backed ones under '33 Act. The futures ETFs filed under the '40 Act (which Genz loves) are very much alive and likely on schedule (we think 75% chance approved in Oct). Here's our odds: https://t.co/cSZ8aDsITl pic.twitter.com/DUEvRANvO7
— Eric Balchunas (@EricBalchunas) October 2, 2021
Balchunas points out that ETFs based directly on BTC, i.e. physically-backed, comply with the 1933 law, while ETFs on futures comply with the 1940 law.
He comments on this by saying that the new SEC chairman, Gary Gensler, “loves” the latter.
He concludes by saying that their approval process is still very much alive and that they could be approved on schedule.
October is the month in which the SEC is expected to rule in favour, so Balchunas sees a 75% chance of that happening.
In August, Galaxy Digital sent an application to the SEC for approval of an ETF based on bitcoin futures, following a statement by Gary Gensler himself that the agency would be more likely to approve an ETF not backed directly by BTC but by BTC futures contracts.
Last week, Gensler once again reiterated that the SEC’s position is more permissive towards such applications.
“We’ve started to see filings under the Investment Company Act with regard to exchange-traded funds (ETFs) seeking to invest in CME-traded bitcoin futures,” he said in concluding remarks at the Future of Asset Management North America Conference.
When combined with the other federal securities laws, the ’40 Act provides significant investor protections for mutual funds and ETFs. I look forward to staff’s review of such filings”.
Investment Company Act and approval of ETFs on Bitcoin
The key issue could be the Investment Company Act of 1940, whose rules would provide greater protection than the Securities Act of 1933.
The SEC has never hidden the fact that one of the main problems it sees in approving an ETF on bitcoin is precisely the lack of protection for investors, especially retail investors. ETFs based on physical BTC would fall under the Securities Act of 1933, which provides less protection, while futures-based ETFs would fall under the Investment Company Act of 1940, which provides more protection.
This is why the SEC is less worried about approving an ETF based on CME futures on bitcoin, which could favour Galaxy Digital’s application, or another similar application submitted by VanEck.
According to Balchunas, the first bitcoin futures ETF to be approved could be that of ProShares, which the SEC is expected to rule on in October, while Galaxy Digital’s application is much less likely to be approved.