The U.S. Securities and Exchange Commission is seeking comments on yet another application for a proposed exchange-traded fund (ETF) that would track the price of Bitcoin.
An exchange-traded fund[1] is a marketable security that allows investors to bet on the performance of an underlying asset (or assets) without requiring the investors to maintain custody of the underlying asset(s). ETFs are traded like stocks, which allows investors to speculate on the price of gold or oil without having to enter into complex derivative contracts or hold the actual assets.
ETFs can, in theory, track the price of anything from physical commodities to foreign currency exchange rates to stocks and bonds. ETFs are technically investment companies which must seek approval from the SEC prior to selling shares to the public. ETFs are not mutual funds, although they have the similar characteristic of exposing their investors to pools of underlying assets. Shares in mutual funds can only be purchased or redeemed at the end of each trading day, while ETFs trade throughout the day at changing prices, just like stocks.
There has been a great deal of interest in creating an ETF that tracks the price of Bitcoin. Such an instrument would remove one of the largest impediments preventing capital from entering the crypto-space—custody[2]. Institutional investors have cited the inability to find a qualified custodian as one of the largest hurdles preventing them from accessing the crypto-space. If those investors could speculate on Bitcoin through an ETF on a trusted platform, that would eliminate a massive barrier to entry.
This is not the first proposal for a Bitcoin ETF that the SEC has seen. In March of last year, the SEC denied[3] the Winklevoss twins’ application for a Bitcoin ETF, citing the inherently unregulated nature
