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With more than 35 million customers, $ 21 billion in revenues and $ 3.8 trillion in discretionary assets under management, Fidelity Investments is one of the largest investment management companies in the world. It may need all its strength to break the losing streak of crypto fund sponsors facing off against the US Securities and Exchange Commission.

As reported, on March 24, Fidelity filed a preliminary registration statement with the SEC on behalf of its Wise Origin Bitcoin Trust – an exchange-traded fund that would track Bitcoin’s performance as measured by its Fidelity Bitcoin IndexThis followed similar SEC filings this year from WisdomTree, CBOE / VanEck, NYDIG Asset Management, Valkyrie Digital Assets and SkyBridge Capital.

A Fidelity Bitcoin fund would be an event of historical importance. According to Nik Bhatia, author of the book Layered money: from gold and dollars to Bitcoin and central bank digital currency and associate professor of finance and business economics at the University of Southern California, this would be greater than Elon Musk buying $ 1.5 billion in Bitcoin (BTC) for Tesla’s corporate treasury, more important than PayPal allowing users to buy, sell and hold cryptocurrency, and bigger than Coinbase’s upcoming IPO.

“It would bring the last stamp of legitimacy to Bitcoin,” Bhatia told Cointelegraph, and it could happen relatively quickly. “I imagine that [CEO] Abby Johnson and Fidelity have filed knowing they will be approved, and I now think it will likely take less than 12 months. “

Nigel Green, founder and CEO of deVere Group – an independent financial advisory firm – told Cointelegraph that if the SEC approves Fidelity’s BTC plans, it would “be another important step into the mainstream for cryptocurrencies. It will inevitably also attract more institutional investors. encourage the use of the already rapidly growing cryptoverse. ”

But not everyone is sure. “The name Fidelity is important, but it may not be big enough to overcome the other hurdles,” Georges Ugeux, assistant professor of law at Columbia University Law School, told Cointelegraph. One of those hurdles is the lack of diversification of the crypto funds, illiquidity and, at least in the short term, the fact that the agency still does not have a confirmed chairman.

Lennard Neo, chief of research at Stack Funds – a provider of crypto index funds – told Cointelegraph, “We have seen many ETFs rejected by the SEC, citing manipulation and market size as concerns.” Still, the cryptocurrency space has grown significantly in recent years and has become an emerging new asset class. “If someone keeps knocking on the door, it will eventually open.”

However, there are reasons why Bitcoin ETF approval is unlikely in the near future, Michael Venuto, Toroso Investments co-founder and chief investment officer, told Cointelegraph. “The SEC role is investor protection. Approving a Bitcoin ETF can be seen as an approval that may run counter to more powerful forces within our government. “More clarity is needed” at the federal, tax, tax and other regulatory levels “before the agency will approve a BTC fund, he said.

Concentration and liquidity problems

Regulators are worried about, among other things concentration risk – ie the possibility of “greater losses” because the positions are not sufficiently diversified – a risk that can be particularly pronounced with a Bitcoin fund. In his Submit S-1, Fidelity itself acknowledged that:

“Unlike other funds that may invest in diversified assets, the Trust’s investment strategy is concentrated in one asset within one asset class. This concentration maximizes the trust’s degree of exposure to a variety of market risks associated with bitcoin and digital assets. “

With stock funds, the SEC doesn’t want a single stock to comprise more than 25% of an ETF’s basket size as measured by market capitalization, Ugeux told Cointelegraph. Bitcoin isn’t equity, of course – it’s more of a commodity, at least according to the Commodity Futures Trading Commission and recent statements from senior SEC officials – but a Fidelity BTC seems to really stretch the SEC’s concentration rules.

Another potential concern is liquidity, Ugeux added. ETF sponsors are supposed to continuously buy and sell the underlying assets of the fund – to protect the sponsor from keeping too much of its own – but here too a Bitcoin fund can be problematic because the underlying assets are not (relatively) liquid securities . .

Fidelity acknowledged in its filing that its ability to sell Bitcoin could be affected by limited trading volume, lack of a market maker, or legal restrictions – indeed, a “government agency can suspend or restrict Bitcoin trading altogether.” The filing added, “Bitcoin is a new asset with a very limited trading history. Therefore, the markets for bitcoin may be less liquid and more volatile than other markets for more established products. “

Nevertheless, these problems can be overcome. ‘It seems like the question of when not like the SEC will approve a Bitcoin ETF, ”said Todd Rosenbluth, head of ETF and mutual fund research at CFRA, in a public statement he shared with Cointelegraph. In addition, when approval comes, he said that:

“We expect several companies to get the green light because the [regulatory] concerns were more with Bitcoin within an ETF than with anything specific to an individual proposal. Companies with an established ETF presence and wide distribution would have the advantages over others. ”

As noted, half a dozen companies filed with the US SEC for crypto ETFs this year. Could any of them beat Fidelity and if so would they have anything close to the impact of a Fidelity ETF?

“I don’t think Fidelity has any advantage in getting approval,” Venuto told Cointelegraph. “The only one with a slight advantage is VanEck, as they were the first in the current class to submit a 19b-4 rule change” – which made it easier to list ETFs.

Felix Shipkevich, a lawyer specializing in cryptocurrency-related legal and regulatory matters at Shipkevich PLLC, told Cointelegraph, “All ETF Bitcoin applicants are game changers” – that is, not just Fidelity. Even with the regulatory ambiguity in the cryptocurrency space, “I’ve yet to see an ETF application from anything less than a top-tier financial services company.”

Related: Bitcoin ETF may be coming to the US, but not all crypto investors think it is necessary

Even if approval is eventually given, it may not go that fast. Hester Peirce, a SEC Commissioner also referred to as ‘Crypto Mom’ for her support of cryptocurrencies, addressed the issue of ETFs in a recent speech, and “they didn’t seem like that [i.e., approval] would come through immediately, ”said Ugeux. Approval (s) may also take additional time, as Gary Gensler has still not been officially confirmed as SEC chairman nearly two months after his nomination, he added.

In fact, from Peirce’s speech, one could conclude that the SEC had been digging into a hole for delaying the approval of the BTC fund for so long. Not only has the SEC’s “reluctance to allow traditional investment vehicles to hold Bitcoin or Bitcoin futures helped investors look for more expensive, less convenient, or less direct substitutes,” she said, ” but it has also increased the stakes for regulatory approval for a regular retail product we can ever award a grant.

The wait has increased “the first approved benefit” for any Bitcoin ETF, and if the agency allows one now, investors might think the SEC is giving its “blessing” to that particular product – which would be the wrong inference, Peirce. added.

Crypto-cynics are “on the wrong side of history”

Whatever the circumstances – be it alone or as part of a group, sooner or later – “an ETF launched by one of the largest mutual funds in the world is sure to make a statement,” Neo said of the Fidelity- application.

He continued, “It highlights the maturity and adoption in Bitcoin” and would bring more institutional investors to the cryptoverse, as well as private investors “with a cheap, flexible alternative to efficiently diversify their portfolio into digital assets.”

“Amazingly,” Green told Cointelegraph, “there are still some ‘experts’ who argue that digital currencies are not the future of money. This investment giant’s move to launch a Bitcoin ETF further underscores that cryptocurrency- cynics are on the wrong side of history. “

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