Asset managers blame the SEC rules for the decision to draw Bitcoin ETFs

The surprising decision of Invalco to cancel the laying of a listed Bitcoin Futures Fund in the United States was partly due to the view that regulatory restrictions would make this too costly for investors, the manager announced.

The $ 1.6-Billion dollar assets managed in the past month to lay a Bitcoin strategy ETFs just a few hours before listing the fund in New York.

The Investco-Vehikel would have been the second ETF, just 24 hours after the Proshares Bitcoin Strategy ETF (Bito), which at almost 1 billion Bito currently has a fortune of $ 1.3 billion.

Despite the time, the effort and the money, which were set in the creation of the 69,000 words, 75-page submission, Investco of the Securities and Exchange Commission said that it would no longer want to pursue the ETF.

The company based in Atlanta said that concerns about the costs and suitability for investors were an important factor for his decision, especially since the futures curve for Bitcoin is generally inclined upwards, known as a contango, which means that a fund normally suffers a loss if it is converting a front contract into a longer -term contract.

An obstacle was that the SEC only allowed ETFs to allow ETFs with a 100 percent commitment to Bitcoin futures.

"We thought that CME futures would be a very effective element of the portfolio. We would never have thought that they would be effective if they would make up 100 percent of the product," said Anna Paglia, Global Head of Etfs and Indexed Strategys at Investco.

The ideal portfolio of investco was instead a mixture of futures, swaps, physical bitcoin, ETFs and private funds that invested in the Bitcoin industry to protect investors in the event of a liquidity crisis.

"Our inability to do this really influenced our decision," said Paglia. "The more we examined the market and the space, the more we realized that there were better opportunities to offer this special commitment instead of offering something to investors that does not match what they expect from investco.

"We carried out a number of simulations and the costs for rolling the futures resulted in a resistance of 60-80 basis points", "said Paglia." We speak of a few large numbers, 5-10 percent of the year. It was not a simple vanilla replication of the [Bitcoin] index without significant tracking error. " She also cited concerns about capacity and liquidity at the appointment market.

Paglia said that Investco had requested an ETF based on futures within 24 hours after the second chairman Gary Gensler indicated that he agreed to the idea of ​​an ETF on the basis of regulated Bitcoin futures, which was traded on the Chicago Mercantile Exchange. The SEC has also rejected applications for ETFs based on the possession of physical Bitcoin itself, a market that, according to the SEC, is susceptible to "fraudulent and manipulative actions and practices".

"We knew that it was really important to get out of the first thing, so we submitted Gensler's statement within 24 hours," she said.

Only after the submission investco carried out a “deep dive” to determine whether the product and the packaging were suitable for investors, said Paglia.

"We thought really for a long time before we pulled this application. We know that people ask questions and scratch their heads. It was easier to say" yes "and see how it works as" no "and declaring the decision. We had to make this difficult decision and make the decision ourselves. I would do the same again. ”

It was expected that Bito was followed by almost a dozen similar vehicles, but his only competition has so far consisted of the 60 million strategy ETF (BITS), a hybrid fund that invests in a mixture of Bitcoin futures and stocks from blockchain-related companies.

BITWISE Asset Management based in San Francisco, which manages $ 1.7 billion in crypto-related assets, was one of the other houses that withdraws for an ETF based on futures.

Matt Hougan, Chief Investment Officer, admitted that this was "somewhat unusual" because "our submission a lot of work, a lot of legal work, intellectual work and work on business orientation" meant.

He called two factors for the decision. Firstly, when Bitwise submitted: "We had the feeling that there would be more flexibility in the construction of the product," said Hougan, without having to start a subsidiary on the Kaiman Islands for tax reasons and there is the possibility to keep the Canadian place bitcoin ETFs next to Futures.

Secondly, Hougan said that the success of Bito when collecting assets had "overwhelmed" the ability of schedule commissioners, intermediate dealers, the orders for buying or selling deadline controls, which would have reacted with price increases.

"Our view was that an ETF based on futures would be imperfect," said Hougan. "When we made the application, we thought that it would be worthwhile, but the costs will be built up at the expense- the contango, the commission dealers, added the cost of working through a Cayman subsidiary- so we finally decided that this did not decide in the interest of long-term appointment investors."

His opinion on the existing futures-based ETFs is that "if you complete a short-term bet" [they] can be good. There can be better options out there for long -term investors. ”

"Ultimately we want to bring a spot ETF onto the market," added Hougan. "Ultimately [there will] be a spot-based ETFs in the USA. I don't think we will sit here in three years and ask if there will be something like this."

Invalco said that there are currently focusing on alternative opportunities to offer cryptocurrencies. TT has launched two crypto-focused stock ETFs and also hopes to finally get approval for a spot-based Bitcoin ETF.