When will the U.S. finally get a Bitcoin ETF?

Here’s what investors should know about when a Bitcoin ETF could be coming—and what options exist in the meantime.

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With the cryptocurrency market topping $2 trillion this week—a single month after Bitcoin plunged below $30,000—speculation is resurfacing yet again on when the U.S. will approve an ETF that can hold the world’s first digital asset and closely track its oscillating price tag.

It’s been eight years since the Winklevoss twins first tried to get approval with the Securities Exchange Commission (SEC) for a novel exchange-traded fund for Bitcoin, back when the currency was selling for under $100. Since then, the price for Bitcoin has swung up and down, even reaching $60,000 at one point earlier this year, and more than 15 asset managers have jumped aboard with their own filings—none of which have been flashed a green light by the U.S. securities regulator. (Bloomberg Intelligence analyst James Seyffart has tracked the more than 35 attempts in America since 2013—most of which have been delayed or denied.)

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With the cryptocurrency market topping $2 trillion this week—a single month after Bitcoin plunged below $30,000—speculation is resurfacing yet again on when the U.S. will approve an ETF that can hold the world’s first digital asset and closely track its oscillating price tag.

It’s been eight years since the Winklevoss twins first tried to get approval with the Securities Exchange Commission (SEC) for a novel exchange-traded fund for Bitcoin, back when the currency was selling for under $100. Since then, the price for Bitcoin has swung up and down, even reaching $60,000 at one point earlier this year, and more than 15 asset managers have jumped aboard with their own filings—none of which have been flashed a green light by the U.S. securities regulator. (Bloomberg Intelligence analyst James Seyffart has tracked the more than 35 attempts in America since 2013—most of which have been delayed or denied.)

At the end of July, asset manager ProFunds took a noteworthy step in the general direction of an SEC-approved Bitcoin ETF when it launched the first Bitcoin futures mutual fund. To be clear, the fund doesn’t hold any Bitcoin—just Bitcoin futures contracts (and sometimes Canadian ETFs and money-market instruments). Gary Gensler, chair of the SEC, said about a week later that the SEC may smile upon a Bitcoin ETF with a similar strategy—statements that would spark a handful of fresh ETF applications. 

But what about a fund that actually buys Bitcoin itself and can manage to keep up with its chaotic volatility? Here’s everything investors should know about what’s available now, and when to plan for the U.S. finally getting its own Bitcoin ETF.

Let them have BTC

It’s not surprising why so many asset managers are racing to launch a crypto ETF in the U.S. First of all, there’s already an ETF for pretty much anything you could imagine: corn, gaming, and marijuana, to name a few. There was once even an obesity ETF (with the ticker SLIM), though that—fortunately—was liquidated last year.

ETFs have become increasingly popular among retail investors and institutions alike: They’re a simplified, diversified, accessible, and relatively cheap way to gain exposure to some area of the market. Since assets are pooled, investors can put small sums of money into the fund, and spread it out across the whole market, a specific asset class, or some theme they’re interested in or passionate about. Fees tend to be competitive, and brokerages take care of most of the paperwork. There are also two other key attractive features of the product: tax benefits (capital gains taxes are incurred only when an investor sells) and instantaneous liquidity (ETFs trade intraday, rather than once a day after market close like mutual funds). For all these reasons, investors have been piling more and more money into ETFs. There were $6.5 trillion in assets invested in ETFs at the end of June, according to the Investment Company Institute—that’s a 49% increase from the year prior.

When it comes to cryptocurrency, there’s plenty of pent-up demand for an ETF—and especially one invested in Bitcoin. Bitcoin, as the first digital asset, is typically an investor’s first introduction into the world of digital assets and all the innovation happening on blockchain technology. Bitcoin has garnered a host of attention based on its investment returns, which—while volatile—have been nothing short of astronomical: BTC is trading above $45,000 as I write this, up more than 7,800% from five years ago. Particularly with the spike in inflation rates, some investors (and even companies) are using cryptocurrencies as a way to hedge risk. “The dollar’s value may go down, but investors think that gold and Bitcoin will continue to uphold their value,” Neena Mishra, director of ETF research at Zacks Investment Research, told Fortune.

A look at the enthusiasm in Canada’s first Bitcoin ETF, the Purpose Bitcoin ETF (BTCC), which was approved in February, shows just how anxious investors were to get their hands on this product: It reeled in more than $1 billion in Canadian dollars within its first two months of trading.

Of course, no one needs an ETF to buy Bitcoin. Investors can just create their own digital wallets and buy and sell crypto as they please. They can also purchase their own coins in the spot market at crypto exchanges like Coinbase, Kraken, or Gemini. And some products are already available in the U.S. market, such as trusts—more on that below. 

There are some drawbacks to those options: Fees can be high. Private keys can be lost. Making a wallet (or more importantly, securing it) can be a nuisance. You can’t hold crypto in a standard brokerage or retirement account, either, so it can be difficult to incorporate Bitcoin, Ether, or any other coins into a broader portfolio. There’s also the risk of losing it all to a fraudster—with little chance of getting any of it back.

An ETF could help address all of that. That is, if the SEC were to finally approve one.

A long wait

Some argue that the U.S. is lagging far behind when it comes to crypto ETF regulation—even some within the SEC’s own ranks

Switzerland, Sweden, Germany, and some other countries have approved crypto exchange-traded products (ETPs). Note: An ETP is an investment vehicle that trades on an exchange—not necessarily an ETF. After Canada approved its first crypto ETF earlier this year, it has seen a boom in crypto funds, such as the 3iQ CoinShares ETF (BTCQ) and the Evolve Bitcoin ETF (EBIT). The ETF with the lowest fees available (at 0.95% in annual fees) is the CI Galaxy Bitcoin ETF (BTCX), which launched in March and has some $254 million in assets.

“Canadian regulators have always been ahead of the U.S. in terms of approving these different kind of ETFs,” said Mishra. Canada moved faster to approve futures-based, marijuana, and psychedelic investment products, she said, noting that the U.S. tends to be “more conservative.”

When the first cluster of filings rolled in back in 2017 and 2018, the SEC was tied up on whether the crypto market was susceptible to fraud as well as its skepticism over custody options for the digital assets. As companies have matured and more reputable players entered the space, those concerns have evolved. The big issue now seems to be that because Bitcoin is considered a commodity, and neither a security nor a derivative, it isn’t regulated by the SEC or Commodity Futures Trading Commission (CFTC). That could mean no disclosure requirements, no rules to prevent bad actors, and no barriers to things like proprietary trading. 

Should there be some type of unusual market activity, the SEC may not have the market surveillance agreements with these companies to pull data and look into what took place, according to Doug Schwenk, CEO of Digital Asset Research, a cryptocurrency pricing and market data provider for institutional investors.

Advocates for a Bitcoin ETF hoped that Gensler, the Joe Biden–appointed SEC chair, would work through some of the concerns and speed along the process. That seemed like a fair assumption, considering that he had taught about cryptocurrencies and the inner workings of blockchain at MIT for several years. Instead, he seems to have taken a critical stance on the risk the digital coins can pose to investors. (Gensler’s words to Bloomberg earlier this month: “While I’m neutral on the technology, even intrigued…I’m not neutral about investor protection.”) 

“I think ultimately the [SEC] is concerned with the market manipulation that may happen,” Schwenk told Fortune.

Bitcoin futures, however, look like they have the SEC’s blessing after the regulator approved the first mutual fund to track them. The SEC may have been more confident in this kind of fund because futures trade on the Chicago Mercantile Exchange (CME), the largest derivatives exchange that is regulated by the CFTC, said Mishra of Zacks Investment Research. “Basically, there is more investment protection in the futures-based format,” she said.

It’s possible that a Bitcoin futures ETF could be approved as early as this year, said Dan Weiskopf, one of the portfolio managers for the Amplify Transformational Data Sharing ETF (BLOK), which is an ETF that primarily holds positions in companies involved in blockchain. “I think there’s reasonable expectation for it to be in the fourth quarter, or the first quarter [of 2022],” he told Fortune.

But even a Bitcoin futures ETF may have its own hurdles, according to Mishra. The CFTC sets limits on how many futures contracts any one market participant can own. If a Bitcoin futures fund balloons, it may have to invest more heavily in existing Bitcoin ETPs, rather than the futures contracts themselves, which could make the fund more expensive due to fees. Futures contracts also expire, which will require asset managers to open new contracts at whatever the current price may be, which could lead to a gap between the fund price and its underlying holdings, according to Weiskopf. Even so, “the futures-based product would track much better than what’s available currently in the U.S.,” Weiskopf said.

For investors who want an ETF that owns the actual Bitcoin itself, it could still be a long wait. But Mishra and Weiskopf both told me they think it’s possible a Bitcoin ETF will be approved sometime in 2022. In the meantime, here’s what’s available:

On the shelf now

With a Bitcoin ETF likely a year or so away, there are some alternatives available to investors—though none of them will make for an identical replacement.

The most popular way U.S. investors are buying Bitcoin on an exchange is via the Grayscale Bitcoin Trust (GBTC), which tracks the CoinDesk Bitcoin Price Index and has gathered nearly $30 billion in assets. Although it is not an ETF, the fund can be a good solution for long-term investors who want direct exposure to Bitcoin, and who want to hold their shares in brokerage or retirement accounts. The fund’s 12-month return was higher than 272% on Aug. 18.

Still, GBTC’s annual fee is steep—at 2%. The investment vehicle operates as an open-ended private trust. Unlike an ETF, where investors can instantly buy and sell shares once it’s listed, accredited investors buy shares at the net asset value, then resell them to retail investors after a six-month lockup period. The shares can’t be redeemed—only bought and sold—so supply and demand differences can make its price diverge widely from its underlying Bitcoin holdings. On one day of May, GBTC closed at a 20.5% discount from Bitcoin, according to Bloomberg data, which is one of the reasons Grayscale executives say they hope to convert the trust into an ETF. 

GBTC is the largest Bitcoin trust, but it’s not the only one. There’s also the Osprey Bitcoin Trust, which launched in February with a much lower annual fee of up to 0.79% and some different terms, like a longer lockup period for accredited investors.

Then there’s the aforementioned Bitcoin futures mutual fund, the Bitcoin Strategy ProFund (asset manager ProFunds has filed applications for a Bitcoin ETF with the SEC on several occasions). This fund will track the CME CF Bitcoin-Dollar US Settlement Price Index, which is a benchmark that aggregates Bitcoin pricing data from major crypto exchanges. This mutual fund currently has a net expense ratio of 1.15%, because it is handing out fee waivers until November 2022 to improve returns; the gross expense ratio is higher—at 1.47%.

Investors could also consider indirect investments, by purchasing ETFs that buy shares of companies involved in crypto, such as the Amplify ETF Weiskopf manages, BLOK, which has fees of 0.71% and has an annualized one-year return of about 141%. VanEck Vectors Digital Transformation ETF (DAPP), which launched in April with annual fees of 0.50%, invests in companies that have the potential of getting 50% of revenue from digital assets. That fund is currently down more than 32% since its inception four months ago (which isn’t surprising, given that Bitcoin was trading at an all-time high around the time of its launch). There are also funds like Cathie Wood’s ARK Next Generation Internet ETF (ARKW), which indirectly invests in Bitcoin by holding shares of GBTC. Ark Invest was the first asset manager to announce an intended price (a 0.95% fee) for its Bitcoin ETF filing, which is still awaiting regulatory approval.

Of course, investors who decide to buy into what’s currently available—and eventually a true Bitcoin ETF—better be prepared for the chaotic volatility that comes along with exposure to Bitcoin, as it isn’t for the faint of heart. Bitcoin prices swung 40.7% during the 22 business days of July alone. 

Either way, asset managers are forecasting quite a bit of investor demand for a Bitcoin ETF, with 13 ETFs in line with SEC-filed applications, according to Bloomberg. We’ll see who gets the seal of approval first.

WEEKLY CHART

JARGON, EXPLAINED 

“ETP”—Exchange-traded products track underlying securities, an index, or other investment products. They can include ETFs, but also vehicles like exchange-traded notes (ETNs), which are baskets of unsecured debt securities, exchange-traded commodities (ETCs), or private placement vehicles, like the Grayscale Bitcoin Trust.

DON’T MISS THIS

On its earnings call Aug. 18, which was open to retail investors, Robinhood said it was building out some new products, including digital wallets and more cryptocurrency options (although it’s not making any commitments right now about selling HOOD merch). You can read more about the brokerage’s first earnings call here.

We’re just getting this column off the ground, so send me your thoughts and feedback below. Thanks for reading. 

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com

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