A Futures Based Bitcoin ETF Proposed, Can It Pass SEC?

WisdomTree, a New York based asset manager which last year launched a physically-backed Bitcoin ETP in Europe, plans to launch in the United States a bitcoin ETF with a twist. They say:

“The Fund may also invest up to 5% of its net assets in bitcoin futures contracts (“Bitcoin futures”). The Fund will invest in cash-settled Bitcoin futures traded on the Chicago Mercantile Exchange, which is a registered futures exchange, only. The Fund will not invest in Bitcoin directly.”

This is part of their WisdomTree Enhanced Commodity Strategy Fund which tracks commodities as an asset class.

They’ve now asked to add bitcoin to it, and just 5% of the total assets, with Bloomberg thinking they’re not gone go very far, but might it be different this time?

For years now countless of attempts have been made to get the American Securities and Exchanges Commission (SEC) to approve a bitcoin ETF with numerous designs put forward to them, but all have been rejected.

Following today’s revelations that US President Donald Trump told the Treasury Secretary to “go after bitcoin,” it may be these rejections are due to policy decisions coming from the top.

However the design of this particular ETF might not be very good for bitcoin because it “invests” in futures traded on CME.

They are fake futures in as far as there is no actual delivery of any asset or commodity, with their purpose being none other than to facilitate price manipulation.

So from one perspective, allowing this ETF may actually be bad for bitcoin because it adds more liquidity to manipulative platforms, instead of to the spot trading bitcoin exchanges where the real price is set.

You can’t even find a silver lining here in suggesting the fund will have to hedge with the spot price, so some crumbles would trickle to the actual bitcoin.

That’s because this fund just tracks the price on futures, rather than trading it, so from their perspective whether up or down is irrelevant, and more a decision for individuals regarding whether or not to invest in the fund.

Those individuals may then hedge themselves, but ETFs and the like are more for pension funds.

That’s because the government restricts such pension funds or pension portfolios to invest only in stocks with some 90% of their assets.

The remaining 10% is then for everything else, oil, gold, art, eth, bitcoin, or any other commodity and asset.

You get around that restriction by having an ETF that tracks the price of say bitcoin, and then now where the law is concerned in this very specific case, bitcoin is a stock as and ETF is a stock product.

Thus it’s not too clear whether funds would be able to hedge because it’s not too clear whether it would comply with the regulations.

They may instead use the bitcoin exposure as a diversifier because it does not generally correlate with oil or gold or stocks, although temporarily it does sometime have correlations depending on events.

Since the bitcoin exposure would be through another fake instrument of futures, there may not be a demand increase for bitcoin itself from this ETF.

The only effect may instead be that Grayscale’s premium on their loopholed ETF like bitcoin, ethereum and other crypto products, might evaporate because wage earning pension savers can get an exposure through WisdomTree.

There would still be a difference however because this new proposed ETF is 95% other commodities, with bitcoin a tiny part of it.

So if you wanted actual bitcoin but in a stock form, you’d still have no access unless you go to Europe where there are an ever growing number of bitcoin, ethereum, and other ETFs which in Europe are called ETPs.

This new ETF however may go through in US as otherwise it would be a very, very hard argument for SEC to make considering it is just 5% of a basket of commodities and even then it is futures instead of actual bitcoin.

Which if it does go through, then from our perspective it may well show just how corrupt the American regulatory regime has become and just how politicized as well as very, very outdated.

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