(Bloomberg) — Those drawn to a physically-backed US bitcoin exchange-traded fund are embracing the US Securities and Exchange Commission’s under-the-radar regime.
The SEC gave its blessing to the Teucrium Bitcoin Futures Fund application in a filing late Wednesday. Unlike existing bitcoin futures ETFs, the Teucrium fund was filed under the Securities Act of 1933 and not the Investment Companies Act of 1940 – the preferred format of SEC Chairman Gary Gensler up to this point.
In the eyes of Bloomberg Intelligence’s James Seifert, those nuances matter. Gensler pointed out last August that the 1940 law provides greater investor protections than the 1930 law, with the agency allowing the first bitcoin futures ETF to begin trading in October. However, given that a physically-backed bitcoin ETF — a structure the SEC has repeatedly denied — would fall under the 1933 Act, approval of the TUCrime Fund may be a necessary step for a spot ETF, Seifert said. .
“Gensler initially approved bitcoin futures ETFs, citing the 1940 Act of Protection, which said they were superior to the 1933 Act products. But this is the 1933 Act futures ETFs,” Seifert said. Strengthens the case for a spot bitcoin ETF, which goes through the exact same process.”
Teucrium’s decision also highlights Grayscale Investments LLC’s campaign to convert the $28 billion Grayscale Bitcoin Trust (ticker GBTC) into a physically backed ETF. The SEC’s deadline for making a decision is July 6, and should the applications be rejected, “all options are on the table” including potential lawsuits, Grayscale chief executive Michael Sonnenshine told Bloomberg News last month.
According to Ben Johnson of Morningstar Inc., the approval may encourage Grayscale and other potential issuers, but issues such as oversight of cryptocurrency exchanges remain.
“I don’t think it does anything to address the SEC’s concerns about spot bitcoin ETFs,” said Johnson, director of global ETF research. “That said, it may be an incident that compels one or more spot bitcoin ETF filers to sue the SEC in hopes of forcing the issue.”
Nate Gerasi of ETF Store agrees. While the SEC has weakened its argument for not approving a physically-backed fund, it is still unlikely that they will allow such a product to launch in the near future, he said.
“The SEC previously stated that Act 40 funds provide additional investor protection. With the approval of the Teucrium ETF, the SEC eliminates its own argument on that front,” Geraci said. “All that said, I still don’t expect the SEC to approve a spot bitcoin ETF unless they have oversight of crypto exchanges.”