Bitwise Files For Physically Backed Bitcoin ETF

The firm’s CIO explained their filing’s rationale, sharing that the SEC can now approve an actual bitcoin ETF.

• Bitwise Asset Management has filed for a physically-backed bitcoin ETF with NYSE Arca, according to a new filing with the SEC.
• The exchange-traded fund would trade spot bitcoin instead of BTC futures, as most filings have recently sought to do.
• “The market has matured,” Bitwise chief investment officer Matt Hougan said on a Twitter thread, explaining the company’s rationale for the filing.

While many companies have been following the SEC’s chair Gary Gensler’s recent remarks and filing for exchange-traded funds (ETFs) for bitcoin futures, Bitwise took a different route. The asset manager’s CIO, Matt Hougan, shared on Twitter why his company chose to seek the approval of an actual bitcoin ETF instead of one based on futures.

“There’s already a separate BTC futures-based Bitwise ETF filing. But actual BTC is better,” Hougan wrote. “And we believe it’s finally possible.”

Hougan compiled a short thread to summarize Bitwise’s lengthy 100-page report analyzing why the firm believes the U.S. Securities and Exchange Commission (SEC) will capitulate soon. The CIO of Bitwise cited three significant reasons why a bitcoin ETF is better than a bitcoin futures ETF: costs, dilution, and tail risk.

“It could cost over 5-10% per year to roll the futures (“contango”). Plus another 1-2% in fees,” Hougan wrote. “ETFs can’t hold 100% BTC futures due to rules. Most aim for 85%. So, 15% is other stuff, even bonds! Things can break.”

“A futures-based Bitcoin ETF comes with [around] 6-12% all-in costs, [around] 15% dilution, and tail risk. Useful for certain investors, but not ideal. A direct BTC ETF avoids all that,” Hougan added.

In 2019, the SEC rejected Bitwise’s previous filing for a bitcoin ETF and wrote a 100-page memo sharing their concerns on the market, mainly “their ability to surveil & enforce on manipulation,” according to Hougan. The commission said they needed a “regulated market of significant size” to lead price discovery, similar to commodities ETFs. But Hougan makes the case that now such a regulated market to lead price discovery already exists, effectively allowing a bitcoin ETF to be approved.

“The CME is now the leading source of price discovery in the bitcoin market! That’s compared to Coinbase, Kraken, Binance, Huobi, BitMEX and even FTX. Prices statistically move first on the CME,” Hougan explained. “The market has matured. An actual BTC ETF can now be approved.”

As a result, Bitwise Asset Management, through NYSE Arca, has filed again with the SEC for offering a bitcoin ETF in the U.S. The firm also published two analysis reports. The first examines price discovery in the modern bitcoin market, while the second analyzes the likely effects of the approval of a bitcoin exchange-traded product.