Valkyrie Digital Assets Becomes Latest Company to File for Bitcoin ETF

Valkyrie Digital Assets, the crypto subsidiary of investment firm Valkyrie Investments, has filed an application for a Bitcoin Exchange Traded Fund with the US Securities and Exchange Commission. 

Valkyrie’s application, filed yesterday, makes it the second firm to apply for a Bitcoin ETF after VanEck resubmitted its application last month.

A Bitcoin ETF is a financial product, listed on the stock market, that tracks the underlying price of Bitcoin. 

The advantage of a Bitcoin ETF for investors would be that it could be invested in from tax-sheltered accounts, available for retail investors as well as “accredited” (rich) investors, and would handle the custody of Bitcoin on behalf of investors.

It could also be cheaper than current publicly-traded Bitcoin products, most notably the Grayscale Bitcoin Trust, Grayscale’s behemoth offering that often sells shares worth far more than the Bitcoin it represents. 

The advantage of a Bitcoin ETF for the crypto economy would be that it could bring in a lot of new money into the crypto market, driving up demand and, with any luck, Bitcoin’s price. 

Valkyrie would trade on NYSE Arca, “providing investors with an efficient means to implement various investment strategies, the firm wrote in its proposal. Xapo would custody the Bitcoin and all of the funds would be held in cold storage.

There’s One Problem

So how can US investors get their hands on a Bitcoin ETF? They can’t! Thus far, the SEC has rejected all applications for a Bitcoin ETF on the grounds that the Bitcoin market is easily manipulated. 

In a September 2019 interview with CNBC, former SEC chair Jay Clayton said, "given that they (cryptocurrency) trade on largely unregulated exchanges? How can we be sure those prices aren't subject to significant manipulation?"

Valkyrie acknowledged the problem in its filing. “These potential consequences of such a Bitcoin Exchange’s failure could adversely affect the value of the Shares,” it said in a risk assessment. 

Valkyrie didn’t really provide any solutions to this problem, apart from noting that several low-quality exchanges shut down and that its ETF would refer to the Chicago Mercantile Exchange’s reference price for Bitcoin.

But companies are trying again. Why? 

It could be due to the new administration. Clayton left the SEC last month and Trump left the White House this week. Just days after Clayton left, VanEck refiled its application for a Bitcoin ETF, which it withdrew in September 2019. 

Biden has appointed Allison Herren Lee as acting chair and has nominated Gary Gensler as the next SEC chair. In a 2019 op-ed for CoinDesk, Gensler wrote, "Cryptocurrencies and blockchain technology have already prompted real change and can continue to do so."

New year, new administration, new...regulated financial products? Bitcoin investors can only hope.