Tiny issuer thinks it is ahead of the curve in the Bitcoin ETF race

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    (Bloomberg) – Valkyrie Investments believes it is now at the top of the queue for approval of the first U.S. Bitcoin Exchange trade fund, thanks to a quirk that allows smaller issuers to submit new bids in confidence Securities and Exchange Commission has moved.

    The Nashville, Tennessee-based company filed for regulatory approval for a futures-based fund two months ago, likely the first company to do so before attacking others after positive comments by the SEC on the structure. The request was announced Tuesday after the Nasdaq exchange, on which the Valkyrie XBTO Bitcoin Futures Fund would be listed, filed a response with the SEC.

    The application remained hidden thanks to a quirk of small companies that allows them to file in confidence without fear of their ideas being copied by larger players, said Steven McClurg, chief investment officer at Valkyrie Investments.

    “We still thought a physical bitcoin ETF was a little further afield and with futures, the way they are regulated and the way they trade with CME, they are already a regulated product,” McClurg said in a phone interview. “So it’s like the one-step, two-step path to getting to a physical ETF, but we thought that futures offered a lot of possibilities.”

    After SEC chairman Gary Gensler signaled that regulators could be more open to a Bitcoin ETF if it was based on futures rather than the cryptocurrency itself, larger fund managers, including Invesco, rushed to apply for such a product. It would require investors to put a significant amount of money on margin to trade, and would be different from a Bitcoin-backed fund.

    However, it does not mean that Valkyrie will be the first to be approved should approval come any time soon.

    U.S. regulators have yet to bless a crypto ETF, despite at least 19 issuers aiming to launch one. Together, they submitted over two dozen submissions, according to a review by Bloomberg Intelligence’s James Seyffart. Many strategists argue that getting approval first may be important as it could mean such a fund will attract more inflows – as it did with the first one that was sanctioned by regulators in Canada.

    Meanwhile, Gensler said an ETF that complies with the SEC’s stringent mutual fund rules could offer investors the protection they need. Most of the pending ETF applications were filed under the laws of the 1930s that allowed exchanges to list products. Valkyrie has filed applications for a physically backed fund as well as another futures-based fund under the 1940 Act, McClurg said.

    Although many crypto backers have expressed concerns about a futures-based Bitcoin fund that they believe is unnecessarily complicated, McClurg doesn’t see it that way.

    “The SEC is trying to be careful here – which it should be doing,” he said. “While I believe the market is ready for a physically backed ETF, I know that they are just trying to be extra careful before launching anything that may harm retail investors, and this is their way of doing it to do.”

    –With assistance from Ben Bain.

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