The finance legend who pioneered the first oil ETF explains why he’s not holding his breath for a bitcoin one

Jay Clayton SEC

  • On Wednesday evening, the SEC rejected nine bitcoin-linked exchange-traded funds.
  • The suite of funds were linked to bitcoin futures, a structure many market structure experts thought would have an easier time gaining approval.
  • John Hyland, a early leader of the exchange-traded fund industry, say it’s unlikely the SEC would approve any type of fund linked to bitcoin. 

The bitcoin world was dealt a big blow when regulators rejected nine exchange-traded funds tied to bitcoin futures on Wednesday.

These include two products from ProShares, two from GraniteShares, and five other proposals from Direxion. 

Screen Shot 2018 08 23 at 7.28.51 AMIt means the world is still waiting for its first fully regulated bitcoin ETF product. The funds would have tracked bitcoin futures trading on regulated US exchanges, not bitcoin itself.

A bitcoin ETF would likely make it easier for mom-and-pop to tap into the market, which known for its volatility and market manipulation. 

Still, it’s not clear if the SEC’s concerns about such a derivative product will be mollified in 2018. 

John Hyland, a early leader of the exchange-traded fund industry, put the odds of a bitcoin ETF going live this year at 20%. 

Hyland joined California asset manager Bitwise Asset Management earlier this year to help get their ETF off the ground. Unlike other proposals sent to regulators, Bitwise’s ETF would track a basket of cryptos, not just one. 

Formerly the chief investment officer of United States Commodity Funds, Hyland is known for pioneering the development of the first crude oil ETF, the first natural gas ETF, and the first copper ETF. 

"I was a bit surprised that the SEC bundled them all together instead of waiting until September to give the same response to Direxion and GraniteShares," Hyland said, referring to the regulator’s rejection of the nine funds. 

Some market observers thought a futures-based ETF would have had a better chance of approval since they trade on regulated markets, but the SEC said in a statement that issuers did not convince the agency that the markets were large enough to withstand manipulation and support a derivative.

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Volumes in bitcoin futures markets have been on the decline since late July, with only $18 million of volume trading in a day. 

An ETF based on bitcoin itself also doesn’t appear to stand a chance. Richard Johnson, a market structure specialist at Greenwich Associates, said the SEC desires for the market to be properly monitored. But this might be an impossible feat to overcome since much of the volumes in the crypto markets are in overseas markets in Asia. 

"If that’s what the SEC is saying, that’s not going to change any time soon," Johnson said. "Unless an ETF issuer can exclude that type of volume from the contract volume."

Take note bitcoin ETF hopefuls. 

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from SAI