Bitwise Asset Management has filed a Bitcoin exchange-traded fund (ETF) proposal with the US Securities and Exchange Commission. The initial registration statement on Form S-1 is dated January 10.
The proposed Bitwise Bitcoin ETF Trust is spearheaded by John Hyland, global head of exchange-traded funds for Bitwise and the former chief investment officer of United States Commodity Funds (USCF) where he led efforts to launch the world’s first crude oil ETF, the United States Oil Fund (USO); the world’s first natural gas ETF, the United States Natural Gas ETF (UNG); and several other commodity index funds.
The new Bitwise Bitcoin ETF would track the Bitwise Bitcoin Total Return Index, produced by Bitwise Index Services, LLC. Shares would reflect the performance of the total returns available to investors in Bitcoin, as measured by the performance of the index.
In an effort to satisfy the SEC, which has so far rejected every Bitcoin ETF proposal previously submitted, Bitwise is attempting to address every possible point of contention and criticism that has made regulators shy away from an approval.
According to the announcement,
“The proposed ETF differs from previously filed proposed Bitcoin ETFs in that it will rely on regulated third party custodians to hold its physical bitcoin, and in that the index draws prices from a large number of cryptocurrency exchanges, representing the majority of currently verifiable Bitcoin trading.”
Bitwise, a leading provider of cryptoasset index and beta funds, currently tracks over 200 on-line cryptocurrency exchanges. Applying strict criteria, it has eliminated a number of exchanges based on several factors.
- Eliminating exchanges that are domiciled in emerging market countries
- Eliminating exchanges domiciled in countries that have capital controls
- Eliminating exchanges that do not charge fees for trading, either explicitly or through “trade mining” activities where an exchange provides an off-setting rebate to the client for the trades
- Eliminating exchanges that lack functioning and stable Application Programing Interfaces (APIs) for the transmission of price and volume data
- Eliminating exchanges which, in the judgment of the Index Provider, have issues with significant downtime, problems with customers withdrawal abilities, or known security issues
- Eliminating exchanges which, in the judgement of the Index Provider, are or may be subject to extraordinary legal or regulatory activity
- Eliminating exchanges that do not account for at least 0.1% of the trailing 30-day Average Daily Volume among all exchanges that charge transaction fees
NYSE Arca, the top US exchange for listing and trading ETFs, is the proposed listing exchange and will file a “Rule 19b-4″ request with the SEC to list shares of the Bitwise Bitcoin ETF.
“While there can be no assurance that the 19b-4 application will be granted or the SEC will review and ultimately accelerate the registration statement, we are optimistic that 2019 should be the year that a bitcoin ETF launches.”
Despite the SEC’s lack of confidence in previous Bitcoin ETF proposals, Hyland believes Bitwise can break the losing streak and deliver exactly what the SEC requires.
“We believe the crypto trading ecosystem has evolved in significant ways in the past year. Having a regulated bank or trust company hold physical assets of a fund has been the standard under US fund regulation for the last 80 years, and we believe that is now possible with Bitcoin.”
Matt Hougan, global head of research for Bitwise, says the company has addressed the issues of custody, trading, pricing, liquidity and reporting.
“The SEC has asked thoughtful and relevant questions about the quality of the crypto trading ecosystem, the reliability of crypto pricing, the strength of the arbitrage function in crypto and the robustness of crypto custody. We have spent the past year researching these questions and look forward to discussing those findings with the SEC staff in connection with the filing and listing application.”
The SEC is still expected to meet its final deadline for a decision on the Bitcoin ETF rule change proposal that was filed by VanEck and SolidX last year. That deadline is February 27, 2019.