US SEC said to shy away from levered and inverse Bitcoin futures ETFs

The US Securities and Exchange Commission (SEC) instructed at least one asset manager to shelve plans for a leveraged Bitcoin (BTC) exchange-traded fund (ETF), the Wall Street Journal revealed in a recent report.

The regulator signaled it wants to limit new Bitcoin-related investment products to those that provide unleveraged exposure to Bitcoin futures contracts, such as the ProShares Bitcoin Strategy ETF, the report added, citing a person “familiar with the matter.”

Valkyrie Investments to shelve the leveraged product 

After launching its own futures-based Bitcoin ETF last Friday, Valkyrie Investments filed for a leveraged Bitcoin futures ETF that sought to amplify the daily returns of a portfolio of Bitcoin derivatives, including futures contracts and options, by using 1.25 times leverage or borrowed money, the report reminded. 

According to the Wall Street Journal’s anonymous source, the asset manager was instructed by the SEC to withdraw its proposal.

The SEC has 75 days to respond to ETF proposals before they would automatically come into effect, although the agency can request fund managers to pull their filings as a courtesy.

The issuers are then left with the choice of whether they want to withdraw their proposal.

As of Thursday, the filing still remained effective.

What about an inverse Bitcoin ETF?

Just hours after Valkyrie Investments filed for a leveraged Bitcoin futures ETF, another issuer, Direxion, filed plans for an inverse Bitcoin ETF.

Direxion Bitcoin Strategy Bear ETF would allow investors to bet against ProShares ETF’s Bitcoin futures contracts.

INVERSE BITCOIN ETF: Direxion just filed for a -1x Bitcoin Futures ETF, which will seek to be short front month bitcoin futures, basically the $XIV of $BITO.. This comes mere hours after the first levered bitcoin ETF was filed. pic.twitter.com/bN2m7pIZw5

— Eric Balchunas (@EricBalchunas) October 26, 2021

According to Eric Balchunas, Senior ETF Analyst for Bloomberg, the SEC is likely to hit the brakes on inverse Bitcoin ETFs as well.

Looks like the SEC not having it w the levered (and likely inverse) Bitcoin futures ETFs. Can’t hurt to try tho. Had they gone through likely billion dollar trading vehicles in a few yrs. via Dow Jones pic.twitter.com/MspMRf3hL9

— Eric Balchunas (@EricBalchunas) October 27, 2021

The agency’s approval of a ProShares Bitcoin Strategy ETF, the first US Bitcoin futures-based fund, was interpreted as a mainstream breakthrough for cryptocurrencies.

The fund began trading last week under the ticker BITO and consequently pushed the price of Bitcoin to a new all-time high (ALH).

Following the impressive ETF debut, the price of Bitcoin reached $66,9300 on October 20,  according to CoinMarketCap.

Earlier this month, SEC Chairman Gary Gensler said in his statement on complex exchange-traded products that leveraged ETFs “can pose risks even to sophisticated investors, and can potentially create system-wide risks by operating in unanticipated ways when markets experience volatility or stress conditions.”

Meanwhile, the ETF filings continue pilling up.

Good point. There’s still 40+ bitcoin ETFs in registration. Will prob hit 50 by Thanksgiving. https://t.co/Lo11gFhEy3

— Eric Balchunas (@EricBalchunas) October 28, 2021

“Four new futures filings this week. Plus we had Bitwise and Grayscale re-start their processes for a Spot Bitcoin ETF,” Balchunas, pointed out on Twitter. 

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