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Yet the short interest etf was approved last week https://www.bloomberg.com/news/articles/2022-06-21/wall-street-gets-a-short-bitcoin-fund-after-70-crypto-colla

Yet the short interest etf was approved last week https://www.bloomberg.com/news/articles/2022-06-21/wall-street-gets-a-short-bitcoin-fund-after-70-crypto-collapse https://www.bloomberg.com/news/articles/2022-06-21/wall-stre... I feel like I’m missing something.

woodruffw 4y ago
Page 2 and forwards offers the SEC's rationale: they don't believe that Grayscale can meet the requirements of the Exchange Act. Presumably the other ETF was able to do so.
steveBK123 4y ago
Could just be Proshares has their act together whereas Grayscale does not. Note Proshares also a long-bitcoin ETF. Both the long & short Proshares are futures based, and do not hold bitcoin. Grayscale it looks like was trying to launch a product directly linked to spot bitcoin, holding them in some sort of trust? Maybe SEC had concerns about custody.. Also, Proshares has historically been a big player in the ETF space, whereas Grayscale has.. as far as I can tell, a single ETF with ~$7M in assets.
- social_quotient 4y ago
  I get it but why allow for exotic derivatives and not the spot? It seems like you’d disallow derivative products until the spot was properly handled. (Custody concerns etc).
  - mattficke 4y ago
    Bitcoin futures are cash settled so there aren’t the same custody issues, there’s no delivery of the underlying involved.
    - social_quotient 4y ago
      Is the future not likely to be impacted the same way if the asset if manipulated? Several of the other comments on this thread mention that the future appears to be less likely to be manipulated. Intuitively I’d think they are wildly similar, or correlated, but I’m sure I don’t know enough here to understand why I’m wrong.
      - Galanwe 4y ago
        > Intuitively I’d think they are wildly similar, or correlated The thing is that if you are willing to bet on the price movement of a token, futures are a much more cost and capital efficient way to do so. - Its more capital efficient because you can leverage futures. Say you want an exposure of $1000 on the price of BTC and only have access to a spot market. You would need to actually buy $1000 worth of BTC, or use margin (a loan basically, but the interests are prohibitive). With futures, you would just need to maintain the required margin amount depending on your preferred leverage, so you could get that $1000 BTC exposure with a post of $100. For the same exposure of $1000, futures allows you to use less capital, or conversely with the same capital, you can have more exposure with futures. - Trading fees are much lower on futures, since this is mainly a virtual, exchange-owned instrument. There is often no actual movement of the underlying when trading futures, especially if everything is settled in cash. Futures trading fees are often significantly lower than spot. These advantages of futures often lead them to have _much_ more liquidity than the actual spot market, which in turn means they are much more stable. What we see often on small marketcap coins is that the ownership of tokens is opaque. Regularly, some whales (sometimes even unknowingly) dump huge amounts of the coin on the spot market, which leads to flash crashes until market makers can provide back some liquidity. This is very unlikely to happen on futures, since the liquidity is so much higher, dumping some millions worth in the market wouldn't dry out the book all that dramatically. I did not check numbers recently, but just to give you a rough idea, the daily traded amount on uniswap (spot, decentralized) should be around $1B/day, Binance spot should be around $10B/day, and Binance perpetual futures around $40B/day.
  - Galanwe 4y ago
    A future is not an "exotic" derivative, it's a "vanilla" product. Futures are mainly OK because there is no custody nor settlement of the underlying itself. Everything is settled in cash. In this respect, cash settled (inverse) crypto futures could almost be considered as having no link whatshowever with crypto currencies. This fine point is actually what allowed brokers to propose crypto futures ahead of any regulation.
    - steveBK123 4y ago
      Exactly, futures are essentially the most vanilla and ancient derivative product in the world. Hammurabi's Code references them as does Aristotle. The earliest uses have been primarily agricultural, allowing farmers to sell grain in advance for cash now and use that cash to fund operations in order to grow the grain.
  - steveBK123 4y ago
    Bitcoin futures trade on the CME, a well known and well regulated US-based exchange. They are cash settled so no bitcoin custody issues. The spot index price source the futures trade in reference to is a well documented methodology sourcing from multiple bitcoin exchange sources. https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cry... https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cry... By comparison, with Grayscale, who knows how custody works and what exchange exposure they may have.
  - quickthrowman 4y ago
    Exchange traded futures are not exotic derivatives, you can trade /BTC on a phone app with ~$30-50,000 of margin, depending on your broker. CME Bitcoin futures are cash settled, it doesn’t settle in actual BTC.
- thesausageking 4y ago
  Grayscale doesn't have many ETFs because the SEC refuses to approve crypto ETFs. Their Bitcoin trust (GBTC) has $13B under management, is carried by every major brokerage, and they've run it since 2013. They have the exact right expertise to run a Bitcoin ETF.
  - lalaland1125 4y ago
    The SEC refuses to approve spot crypto ETFs. The SEC approves future based crypto ETFs. Also, I wouldn't point to grayscale as an example of a good operator. Their Bitcoin trust is trading way below par.
    - gjs278 4y ago
ProjectArcturis 4y ago
There are several long BTC ETFs, they just only hold positions via the futures exchange. That's what the short ETF does as well, just with negative positions. Grayscale was applying to be a "physical" ETF, which would hold and buy and sell actual coins.
chollida1 4y ago
Non spot vs spot etf Th sec is fine with a futures based etf but for some reason doesn’t want a Spot etf. Which is strange because Canada has multiple spot etfs. Some arguments for not allowing a spot wtf is that the futures markets are regulated and smaller currently so a futures based wtf can’t grow as big as a spot one at the moment. Those aren’t great reasons because a lot of spot markets are now hosted by regulated companies like coin and gemini and the he sec said that futures based etfs can hold some of the Canadian spot etfs f they can’t get enough futures contracts Greyscale wins here by losing as it means they continue to get 2% a year in assets where as a spot etf would charge under 1%. The Discount to NAV trade continues on, with a 30% discount waiting to be unlocked. Funny story about this fund and its NAV. It helped sink the fund 3AC. In 2019 and 2020 it was a very crowded trade to give them BTC and get units back that were locked up for 6 months. The units at the time traded at a premium to its NAV( ie you gave 1,000,000 in BTC and got back units worth 1,200,000). Now the NAV has inverted such that the cost per share is less than the btc it holds due to funds like 3AC trying to get their money out. Lots of funds have lost alot of money trading this fund around, and if it was allowed to convert to an ETF none of those losses would have happened, and yet the SEC wont' allow them to convert for some reason :(
- Tesl 4y ago
  The SEC has no responsibility to save them from their own dumb trades
- tim333 4y ago
  Ah - guess that's the Grayscale Bitcoin Trust. I'm a bit slow keeping up with all the ETFs and stuff. Here's a nice graph of its premium/discount https://www.theblock.co/data/crypto-markets/structured-products/premium-of-gbtc https://www.theblock.co/data/crypto-markets/structured-produ... Interesting it was at a 100% premium to assets not so long ago

woodruffw 4y ago

Page 2 and forwards offers the SEC's rationale: they don't believe that Grayscale can meet the requirements of the Exchange Act. Presumably the other ETF was able to do so.

steveBK123 4y ago

Could just be Proshares has their act together whereas Grayscale does not. Note Proshares also a long-bitcoin ETF. Both the long & short Proshares are futures based, and do not hold bitcoin. Grayscale it looks like was trying to launch a product directly linked to spot bitcoin, holding them in some sort of trust? Maybe SEC had concerns about custody.. Also, Proshares has historically been a big player in the ETF space, whereas Grayscale has.. as far as I can tell, a single ETF with ~$7M in assets.

social_quotient 4y ago
I get it but why allow for exotic derivatives and not the spot? It seems like you’d disallow derivative products until the spot was properly handled. (Custody concerns etc).
- mattficke 4y ago
  Bitcoin futures are cash settled so there aren’t the same custody issues, there’s no delivery of the underlying involved.
  - social_quotient 4y ago
    Is the future not likely to be impacted the same way if the asset if manipulated? Several of the other comments on this thread mention that the future appears to be less likely to be manipulated. Intuitively I’d think they are wildly similar, or correlated, but I’m sure I don’t know enough here to understand why I’m wrong.
    - Galanwe 4y ago
      > Intuitively I’d think they are wildly similar, or correlated The thing is that if you are willing to bet on the price movement of a token, futures are a much more cost and capital efficient way to do so. - Its more capital efficient because you can leverage futures. Say you want an exposure of $1000 on the price of BTC and only have access to a spot market. You would need to actually buy $1000 worth of BTC, or use margin (a loan basically, but the interests are prohibitive). With futures, you would just need to maintain the required margin amount depending on your preferred leverage, so you could get that $1000 BTC exposure with a post of $100. For the same exposure of $1000, futures allows you to use less capital, or conversely with the same capital, you can have more exposure with futures. - Trading fees are much lower on futures, since this is mainly a virtual, exchange-owned instrument. There is often no actual movement of the underlying when trading futures, especially if everything is settled in cash. Futures trading fees are often significantly lower than spot. These advantages of futures often lead them to have _much_ more liquidity than the actual spot market, which in turn means they are much more stable. What we see often on small marketcap coins is that the ownership of tokens is opaque. Regularly, some whales (sometimes even unknowingly) dump huge amounts of the coin on the spot market, which leads to flash crashes until market makers can provide back some liquidity. This is very unlikely to happen on futures, since the liquidity is so much higher, dumping some millions worth in the market wouldn't dry out the book all that dramatically. I did not check numbers recently, but just to give you a rough idea, the daily traded amount on uniswap (spot, decentralized) should be around $1B/day, Binance spot should be around $10B/day, and Binance perpetual futures around $40B/day.
- Galanwe 4y ago
  A future is not an "exotic" derivative, it's a "vanilla" product. Futures are mainly OK because there is no custody nor settlement of the underlying itself. Everything is settled in cash. In this respect, cash settled (inverse) crypto futures could almost be considered as having no link whatshowever with crypto currencies. This fine point is actually what allowed brokers to propose crypto futures ahead of any regulation.
  - steveBK123 4y ago
    Exactly, futures are essentially the most vanilla and ancient derivative product in the world. Hammurabi's Code references them as does Aristotle. The earliest uses have been primarily agricultural, allowing farmers to sell grain in advance for cash now and use that cash to fund operations in order to grow the grain.
- steveBK123 4y ago
  Bitcoin futures trade on the CME, a well known and well regulated US-based exchange. They are cash settled so no bitcoin custody issues. The spot index price source the futures trade in reference to is a well documented methodology sourcing from multiple bitcoin exchange sources. https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cry... https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cry... By comparison, with Grayscale, who knows how custody works and what exchange exposure they may have.
- quickthrowman 4y ago
  Exchange traded futures are not exotic derivatives, you can trade /BTC on a phone app with ~$30-50,000 of margin, depending on your broker. CME Bitcoin futures are cash settled, it doesn’t settle in actual BTC.
thesausageking 4y ago
Grayscale doesn't have many ETFs because the SEC refuses to approve crypto ETFs. Their Bitcoin trust (GBTC) has $13B under management, is carried by every major brokerage, and they've run it since 2013. They have the exact right expertise to run a Bitcoin ETF.
- lalaland1125 4y ago
  The SEC refuses to approve spot crypto ETFs. The SEC approves future based crypto ETFs. Also, I wouldn't point to grayscale as an example of a good operator. Their Bitcoin trust is trading way below par.
  - gjs278 4y ago

ProjectArcturis 4y ago

There are several long BTC ETFs, they just only hold positions via the futures exchange. That's what the short ETF does as well, just with negative positions. Grayscale was applying to be a "physical" ETF, which would hold and buy and sell actual coins.

chollida1 4y ago

Non spot vs spot etf Th sec is fine with a futures based etf but for some reason doesn’t want a Spot etf. Which is strange because Canada has multiple spot etfs. Some arguments for not allowing a spot wtf is that the futures markets are regulated and smaller currently so a futures based wtf can’t grow as big as a spot one at the moment. Those aren’t great reasons because a lot of spot markets are now hosted by regulated companies like coin and gemini and the he sec said that futures based etfs can hold some of the Canadian spot etfs f they can’t get enough futures contracts Greyscale wins here by losing as it means they continue to get 2% a year in assets where as a spot etf would charge under 1%. The Discount to NAV trade continues on, with a 30% discount waiting to be unlocked. Funny story about this fund and its NAV. It helped sink the fund 3AC. In 2019 and 2020 it was a very crowded trade to give them BTC and get units back that were locked up for 6 months. The units at the time traded at a premium to its NAV( ie you gave 1,000,000 in BTC and got back units worth 1,200,000). Now the NAV has inverted such that the cost per share is less than the btc it holds due to funds like 3AC trying to get their money out. Lots of funds have lost alot of money trading this fund around, and if it was allowed to convert to an ETF none of those losses would have happened, and yet the SEC wont' allow them to convert for some reason :(

Tesl 4y ago
The SEC has no responsibility to save them from their own dumb trades
tim333 4y ago
Ah - guess that's the Grayscale Bitcoin Trust. I'm a bit slow keeping up with all the ETFs and stuff. Here's a nice graph of its premium/discount https://www.theblock.co/data/crypto-markets/structured-products/premium-of-gbtc https://www.theblock.co/data/crypto-markets/structured-produ... Interesting it was at a 100% premium to assets not so long ago