CNBC's Bob Pisani highlights the first Bitcoin futures ETF that begins trading on Tuesday. Pisani discusses how this ETF could be halted before Tuesday and critics of the futures ETF. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi
Cryptocurrency enthusiasts and the exchange-traded fund industry are bracing for the first bitcoin futures ETF to begin trading Tuesday, when the ProShares Bitcoin Strategy ETF is scheduled to debut at the New York Stock Exchange.
There is, however, one catch: The ETF goes active unless the Securities and Exchange Commission objects to the filing, which can happen right up until midnight Monday.
Despite the uncertainty, many believe the odds are in favor the ETF will begin trading as scheduled.
“I would give it a 75% chance of approval,” ETF Trends director of research Dave Nadig said.
A bitcoin futures ETF: a disappointment, or step in the right direction?
The ETF is based on bitcoin futures that trade on the Chicago Mercantile Exchange. It’s a disappointment to many in the bitcoin community, who would prefer a pure-play ETF backed by physical bitcoin. They complain that the high cost of rolling into futures contracts will not adequately track the spot price of the cryptocurrency, and that the SEC should proceed to approval of a pure-play bitcoin ETF.
“A futures is a derivative of the spot market, so if you are comfortable with futures, why wouldn’t you be comfortable with the spot market?” Grayscale Investments CEO Michael Sonnenshein said. Grayscale is a digital currency asset manager; it runs the Grayscale Bitcoin Trust. Grayscale has indicated it intends to convert GBTC into a bitcoin ETF should they receive regulatory approval.
Regardless, most bitcoin activists — and the ETF community — are cheering it as a small but critical step to open the crypto market to a much wider audience.
“This is a crawl, walk, run market,” Bitwise Asset Management chief investment officer Matthew Hougan said. “The smallest step the SEC can take right now is to launch a bitcoin futures market because it is a regulated market.”
That fact — that futures are a regulated market — is critical to understanding why SEC Chair Gary Gensler is likely to allow a bitcoin futures ETF to begin trading, but not a pure-play bitcoin ETF.
Gensler and the SEC have a crypto problem, and a bitcoin futures ETF will help
Gensler wants to be supportive of financial innovation like crypto, but he lacks regulatory authority over critical areas like crypto exchanges.
“Gensler wants to be innovative and yet balanced,” Hougan said. “He doesn’t want to kill financial innovation [around crypto]. He wants to crack down on the fraud and nefarious elements and the criminal activity. He wants to put a regulatory framework around it.”
But he doesn’t have a regulatory framework, at least not yet. It’s likely that Congress will need to step in and provide a broad regulatory structure for the whole crypto space, but the chances of that happening soon are slim.
However, the crypto space is growing so fast Gensler is under enormous pressure to do something. The SEC can only go so far in claiming regulatory jurisdiction without ruffling the feathers of other agencies.
So the temporary solution is to allow a bitcoin futures ETF to begin trading.
A bitcoin futures ETF allows the broader public to get involved without many of the problems around owning the virtual currency. First, you don’t have to worry about custody. There’s also no one complaining they forgot their exchange password; and there are no issues around someone owing bitcoin on an unregulated exchange who had their crypto stolen by cyberthieves.
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