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Those desiring a physically-backed Bitcoin exchange-traded fund in the United States welcome an under-the-radar SEC rule.
In a late Wednesday filing, the SEC approved Teucrium's application for a Bitcoin Futures Fund. Unlike current Bitcoin futures ETFs, the Teucrium fund was registered under the Securities Act of 1933 rather than the Investment Company Act of 1940, which had previously been SEC Chair Gary Gensler's favored model.
That subtlety, according to Bloomberg Intelligence's James Seyffart, is significant. Gensler said in August that the 1940 statute provides more robust investor protection than the 1930s law, with the regulator approving the first Bitcoin futures ETF in October. However, given the SEC's repeated denials that a physically-backed Bitcoin ETF would violate the 1933 statute, licensing the Teucrium fund might be a necessary precursor to a spot ETF, Seyffart added.
“Gensler initially approved Bitcoin futures ETFs citing 1940 Act protections stating they’re better than 1933 Act products. But this is a 1933 Act futures ETF,” Seyffart said. “This strengthens the case for a spot Bitcoin ETF, which goes through the same process.”
Additionally, the Teucrium ruling shines a light on Grayscale Investments LLC’s quest to transform the $28 billion Grayscale Bitcoin Trust (ticker GBTC) into a physically-backed exchange-traded fund. The SEC’s last deadline to rule is July 6. If the petitions are denied, Grayscale CEO Michael Sonnenshein told Bloomberg News last month that “all alternatives are on the table,” including a potential lawsuit.
While the approval may boost Grayscale and other potential issuers’ confidence, difficulties such as control of cryptocurrency exchanges remain, according to Ben Johnson of Morningstar Inc.
“I don’t think it does anything to address the SEC’s concerns regarding spot Bitcoin ETFs,” said Johnson, director of global ETF research. “That said, it could be the event that compels one or more spot Bitcoin ETF filers to sue the SEC in hopes of forcing the issue.”
Nate Geraci, president of the ETF Store, concurs. While the SEC’s argument against allowing a physically-backed fund has diminished, he believes it is still doubtful that such a product would emerge shortly.
“The SEC had previously said that 40 Act funds provide additional investor protections. With the approval of the Teucrium ETF, the SEC just killed their own argument on that front,” Geraci said. “All that said, I still don’t expect the SEC to approve a spot Bitcoin ETF until they have oversight of crypto exchanges.”