ETF provider wins big from bitcoin boom

Two bitcoin-linked ETFs returned 97% since the end of 2016 — but bitcoin ETF approval is still pending

ETF provider wins big from bitcoin boom
Regulators haven’t approved bitcoin-focused ETFs yet, but two funds have already benefited from the cryptocurrency fever that has spread throughout the investment world.

Bitcoin figures in three ETFs offered by New York-based Ark Investment Management. In two of those ETFs — the US$422 million ARK Innovation ETF and the US$261 million ARK Web x.0 ETF — bitcoin has swelled to become the biggest holding, reported the Wall Street Journal.

The funds were also among the best-performing ETFs last year. According to data from FactSet, both returned more than 97% since the end of 2016. They each had around 6% of their assets exposed to bitcoin, which has exploded by more than 1,400% since the end of 2016.

Ark invests in bitcoin through the Grayscale Bitcoin Investment Trust, which is promoted as a way to own the cryptocurrency “without the challenges of buying, storing, and safekeeping bitcoins.” Last year, the trust reportedly returned 1,560.5%. “We are not investing in bitcoin or bitcoin futures,” Tom Staudt, Ark’s chief operating officer and director of product development, told the Journal.

Grayscale was among a few fund providers that have sought approval to launch a bitcoin ETF, only to hit a regulatory barrier from the US Securities and Exchange Commission (SEC). After the launch of bitcoin futures on two exchanges in December, the regulator received a new wave of applications from several hopeful fund companies.

But while some have suggested a liquid and regulated futures contract would bolster the case for bitcoin ETF approval, the SEC has not softened its position. This week, several firms were asked to withdraw their applications to launch ETFs backed by bitcoin futures contracts.

According to Exchange Traded Concepts CEO Garrett Stevens, whose firm submitted proposals for ETFs with short and long exposure to bitcoin futures, the SEC wants more time to make sure the bitcoin futures market is efficient enough to avoid “something drastic happening.”

“You had two contracts that had been approved on two separate exchanges,” Garret said, referring to launches on the Cboe Global Markets and CME Group exchanges last month. “So this kind of a ground stop is surprising, to be honest."

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