The US Securities and Exchange Commission (SEC) has warned at least one prospective ETF provider not to proceed with their plans for a leveraged fund, the Wall Street Journal reported on Thursday, citing an insider. The watchdog wants to limit Bitcoin-related investments to ones without leverage. In other words, vehicles that do not consist of borrowed funds.
Valkyrie tried to lever up on Tuesday
The WSJ’s report emerged two days after Valkyrie Investments filed to offer a leveraged Bitcoin futures ETF in a bid to get the SEC to allow more crypto investment opportunities. Their fund, BTFX, would provide 1.25x exposure to the Bitcoin reference rate.
Whether Valkyrie’s levered BTC Futures ETF will ever be listed is a different matter altogether. Only the very basic futures ETFs are live now and it took the regulator years to allow a Bitcoin ETF of any form to trade. The SEC will respond to the Valkyrie filing within 75 days.
SEC approved a Bitcoin futures ETF earlier this month after tens of applications from different companies. ProShares’ fund was listed on the New York Stock Exchange and began trading on October 19, contributing to a new all-time high for the biggest crypto by market cap. Its price began to decline thereafter as Bitcoin traders moved to sell and capitalize on the development.
No shortage of candidates
There is no shortage of candidates. Direxion Bitcoin Strategy Bear ETF filed for a short Bitcoin futures ETF, which doesn’t involve direct investments in Bitcoin. The fund will only maintain short exposure to futures contracts issued by the CME. In the case of Bitcoin futures contracts, shorting is a bet that their price will decline over a certain period of time.
The ETF might invest in short-term debt instruments, deposit accounts, money market funds, or other Bitcoin futures ETFs. The filing said:
The fund will generally maintain its short exposure to bitcoin futures during periods in which the value of bitcoin is flat or declining as well as during periods in which the value of bitcoin is rising.
SEC has rejected past efforts
This is Direxion’s first Bitcoin ETF filing in three years. The SEC has rejected past efforts. The watchdog may have proven receptive to a narrow Bitcoin ETF class, but it has not issued a stance on more ambitious follow-ups like these. If it doesn’t respond within 75 days, Direxion’s ETF will automatically launch.
