The U.S. Securities and Exchange Commission (SEC) has told several major exchanges that it will not approve applications to launch bitcoin exchange-traded funds (ETFs) because they do not meet the requirements of the regulator. About it writes The Wall Street Journal, citing sources.
Companies that have applied for spot bitcoin ETFs have included BlackRock, Fidelity, VanEck, WisdomTree, and others. They hoped that the SEC would soften its position in light of the growing interest in cryptocurrencies and the emergence of bitcoin-ETF futures last year.
However, the SEC believes that spot bitcoin ETFs pose a greater risk of manipulation and abuse than futures. The regulator also requires applicants to provide additional information on how they will provide liquidity, pricing and storage of bitcoins.
According to experts, the SEC’s refusal could slow down the development of the cryptocurrency market in the United States and increase competition from other countries where spot bitcoin ETFs have already been launched or are in the process of being approved.
Spot ETFs are exchange-traded funds that reflect the current market price of an underlying asset such as Bitcoin. Futures ETFs are exchange-traded funds that reflect the future market price of the underlying asset as determined by futures contracts.
Spot ETFs have a number of advantages over futures ETFs, including:
- Greater precision. Spot ETFs more accurately track changes in the price of the underlying asset, while futures ETFs can deviate from it due to the difference between the spot and futures prices (basis), which can be positive or negative.
- Less volatility. Spot ETFs are less susceptible to price spikes caused by speculation in the futures market, which can lead to supply and demand distortions. Futures ETFs are also subject to contango risk when long-term futures are more expensive than short-term ones, which reduces the fund’s performance when switching contracts.
- Lower costs. Spot ETFs have lower asset management and holding costs because they do not require futures contracts, which include commissions, margins, and premiums, to be entered into and settled. Futures ETFs are also at risk of losing some of their capital due to a negative roll phenomenon, where cheaper contracts are replaced by more expensive ones at maturity.
- And most importantly: spot ETFs mean investing directly in bitcoin, while futures funds do not require this.
