Depth: How far is the cryptocurrency ETF in the future?

WisdomTree, a large asset management company with $ 63.8 billion in assets, is rumored to be planning to issue a regulated stablecoin-awaiting approval from the US Securities and Exchange Commission (SEC). The company could make huge strides with this move.

This move will bring a unique combination of corporate-level and financial supervision experience to the stablecoin field-if the talks with the SEC go well, it may even become the first US-regulated cryptocurrency exchange-traded fund.

According to Cointelegraph reported on January 12, stablecoins will be linked to a basket of assets, such as gold, fiat currencies and government bonds. However, it appears that US regulators have not received a formal application or proposal.

A brewing war?

This development may herald the beginning of competition between leading US asset management companies for their dominant position in the cryptocurrency space. WisdomTree told the Financial Times, which was the first to report the release, that the company "is eager to launch a regulated cryptocurrency in the United States to lead the industry in terms of digital currencies ahead of industry giants BlackRock and Fidelity Investments). "

"People are innovating," Macrae Sykes, portfolio manager and analyst at Gabelli and Company, told Cointelegraph, adding:

"Slowly, we will gradually see more and more large asset management companies like WisdomTree becoming interested in Bitcoin."

On January 9, a Fidelity report wrote : "Although there are still unresolved issues, its position has been consolidated and its potential cannot be ignored." In December last year, the five largest asset management companies One of them, State Street Corp., announced a digital asset pilot project in partnership with a cryptocurrency exchange and custodian Gemini Trust. WisdomTree founder and CEO Jonathan Steinberg said in the announcement:

"Everybody wants to go ahead. We tried ETF 13 years later than State Street. And now there is an opportunity for us to pilot a regulated stablecoin before State Street and Fidelity."

Will crypto ETFs follow?

An exchange-traded fund is a basket of securities traded through a brokerage company on a stock exchange. According to Skyes, WisdomTree specializes in ETFs, is the seventh largest ETF supplier in the United States, and has now become the market leader in ETF products. Sykes is responsible for the company and its other asset management businesses, especially its innovative Japanese hedge stock fund ETF (DXJ) and European hedge stock fund (HEDJ). So will cryptocurrency ETFs follow?

The company said that issuing stablecoins is just a natural extension of its ETF business. In early December 2019, WisdomTree launched a physically supported Bitcoin exchange trading product on the main Swiss stock exchange.

Related Links: US Bitcoin Derivatives Market, 2019 Highlights

A stablecoin is usually linked to a relatively stable base asset, such as the US dollar or gold, and its creation-redemption mechanism is similar to that of an ETF, which helps to closely link value and base assets. This can at least theoretically help solve a long-standing problem with cryptocurrencies: price volatility.

One-to-one stablecoins pegged to the U.S. dollar like Gemini Dollar and Tether typically trade at around $ 1. Luciano Somoza and Tammaro Terracciano also compared the stablecoin and financial instruments of Facebook's Libra proposal:

"For anyone who is familiar with ETFs, (Libra) has a familiar feeling, the create-redemption mechanism is the same, and Ars (authorized dealers) defined by Libra operates like authorized participants in the ETF market.

WisdomTree acknowledges that the structure of stablecoins and ETFs is similar, but product users will be different. The company's stablecoin is expected to be used primarily by cryptocurrency traders. In contrast, ETFs are usually sold to mainstream investors.

Obstacles from the SEC

Obtaining regulatory approval for a stablecoin or cryptocurrency ETF is not easy. In the U.S., the SEC continues to impede the issuance of Libra stablecoins and has not opened its arms to applicants for cryptocurrency ETFs. More than a dozen ETF proposals have failed. Gemini founders Cameron and Tyler Winklevoss have also been rejected twice.

Only last week, Bitwise Asset Management asked for the withdrawal of its Bitcoin ETF filed with the SEC. According to Cointelegraph: "This is the second time a large ETF application has been withdrawn in a few months since VanEck took similar action."

Not without hope

However, recent unfortunate events do not mean that cryptocurrency ETFs are unlikely to be approved. SEC Commissioner Robert J. Jackson Jr. told Rollout last year, "Will there eventually be a company that meets the standards we set? I hope so, yes, I think there will be."

On January 13, Lydon Lydon, CEO of ETF Trends, told CNBC's ETF section that the possibility of launching a Bitcoin ETF next year is 60%. It is worth mentioning that Nick Colas of DataTrek Research is another participant in the project, and he thinks this possibility is only 10%.

Related Links: SEC Does Not Want Crypto ETFs-How Can I Get Approved?

According to Lydon, the SEC recently approved NYDIG's Bitcoin Strategy Fund under the 1940 Investment Act-approved , a newly established investment company to sell its shares (the limit is US $ 25 million) and the creation of this fund, the first Bitcoin fund approved by the SEC, is a positive sign. Lydon went on to add that the increasing use of bitcoin derivatives may help ease the SEC's concerns about the liquidity of bitcoin transactions.

"We are still in the early stages," Sykes told Cointelegraph. "There is still a long way to go before the regulatory framework accepts Bitcoin ETFs. Continuous fraud cases, emerging fraud and a lot of hype are affecting regulators' acceptance of bit ETF. The SEC remains concerned about potential market manipulation. "

Infrastructure investment

At the same time, WisdomTree is investing in crypto infrastructure projects. According to Cointelegraph, on January 7, the company announced its investment in startup Securrency Inc., one of the top institutional blockchain builders in the financial and regulatory fields.

The company said that the basic idea seems to be to issue an ETF that can be more effectively managed on the blockchain platform, thereby pushing ETF products to the investor community more widely and enhancing the user experience for investors.

In general, the cryptocurrency industry has been difficult to obtain the recognition of institutional investors and regulators, so the multi-faceted support of asset management company WisdomTree for regulated cryptocurrencies and blockchain infrastructure can only be viewed with optimism .

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