In a major development for the crypto industry, two leading investment firms have filed applications with the U.S. Securities and Exchange Commission (SEC) to launch exchange-traded funds (ETFs) that would track the performance of Ethereum and Bitcoin futures contracts.
ARK Invest, founded by Cathie Wood, and 21Shares, a Swiss-based crypto asset manager, have partnered to create the ARK 21Shares Ethereum Trust and the ARK 21Shares Bitcoin Trust, according to their filings on August 25.
The proposed ETFs would offer investors exposure to the price movements of ETH and BTC futures contracts traded on regulated exchanges, without the need to hold or store the underlying cryptocurrencies. The ETFs would also seek to minimize the tracking error between the market price of their shares and the net asset value (NAV) of their portfolios.
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The filings come as the SEC is reviewing several applications for Bitcoin ETFs, which have been pending for years. The regulator has repeatedly delayed or rejected such proposals, citing concerns over market manipulation, custody, liquidity, and investor protection. However, some analysts believe that the SEC may be more receptive to futures-based ETFs than those that directly hold cryptocurrencies, as futures are regulated by the Commodity Futures Trading Commission (CFTC) and trade on established platforms such as the Chicago Mercantile Exchange (CME).
The ARK Invest and 21Shares filings also indicate that they have secured the services of several reputable firms to support their ETFs. The Bank of New York Mellon would act as the administrator, transfer agent, and custodian of the trusts, while Coinbase Custody Trust Company would serve as the sub-custodian. Cboe BZX Exchange would be the listing exchange for the ETFs, while Jane Street Capital would be the authorized participant and market maker.
The partnership aims to address some of the regulatory hurdles that have prevented the SEC from approving a crypto ETF so far. By using futures contracts instead of holding physical cryptocurrencies, the ETFs would avoid the issues of custody, market manipulation, and liquidity that have been raised by the SEC in the past. Moreover, by collaborating with Cboe, a well-established exchange that has experience in listing Bitcoin futures products, the ETFs would benefit from a robust market infrastructure and surveillance.
Both ARK Invest and 21Shares have a track record of innovation and expertise in the crypto space. ARK Invest is known for its actively managed ETFs that focus on disruptive technologies, such as artificial intelligence, biotechnology, and blockchain. The firm has been an early and vocal supporter of Bitcoin, and holds a significant stake in Coinbase, the largest U.S. crypto exchange. 21Shares, formerly known as Amun, is a pioneer in issuing crypto ETPs (exchange-traded products) in Europe, with over $1.5 billion in assets under management across 14 products.
If approved by the SEC, the ARK 21Shares Ethereum Trust and the ARK 21Shares Bitcoin Trust would be among the first crypto ETFs to launch in the U.S., potentially opening up a new avenue for institutional and retail investors to access the burgeoning crypto market. The ETFs would also compete with similar products that are already available in other jurisdictions, such as Canada, Europe, and Asia. The success of these ETFs would depend on several factors, such as their fees, liquidity, tracking accuracy, and regulatory compliance.
The ARK Invest and 21Shares applications come at a time when the demand for crypto exposure is growing among investors, both retail and institutional. A crypto ETF would provide a convenient and cost-effective way for investors to access the crypto market without having to deal with the technicalities and risks of buying and storing cryptocurrencies directly. A crypto ETF would also boost the legitimacy and adoption of cryptocurrencies as a new asset class.
The SEC has yet to approve any crypto ETF in the US, despite receiving dozens of applications from various issuers. The regulator has repeatedly delayed its decisions on several proposals, citing concerns over investor protection and market integrity. However, there are signs that the SEC may be warming up to the idea of a crypto ETF, especially after its new chairman, Gary Gensler, indicated that he would be more open to a futures-based product than a spot-based one.
The joint venture between ARK Invest and 21Shares is a strategic move that leverages the expertise and reputation of both firms in the crypto space. ARK Invest is known for its bullish outlook on disruptive technologies, including cryptocurrencies, and has been one of the largest institutional investors in Coinbase, Grayscale Bitcoin Trust, and other crypto-related companies. 21Shares is a pioneer in issuing crypto ETPs in Europe, with over $1.5 billion in assets under management across 14 products.