Reality Shares, an asset management firm based in California is looking to obtain approval from the United States Securities and Exchange Commission (SEC) for a partial Bitcoin ETF.
Some industry stakeholders applaud the ingenious approach noting that the company’s approach might stand a realistic chance of sailing through, offering an investment vehicle closely suited to the Commission’s standards.
Details of the Partial Bitcoin ETF
The asset management firm submitted the application via a prospectus filed with the SEC on Monday (February 11, 2019). Titled “The Realities Shares Blockforce Global Currency Strategy ETF,” the fund seeks to invest 15 percent in Bitcoin futures offered by both the Chicago-based CME and Cboe.
A portion of the prospectus reads:
“The Fund is an actively managed exchange-traded fund (“ETF”) that is designed to provide investment exposure to global currencies, both fiat and virtual currencies, that have been widely adopted for use (e.g., as store-of-value, international remittance, foreign-exchange trading) throughout the world (“Significant Global Currencies”).”
Unlike other Bitcoin ETF applications to the SEC, Reality Shares’ filing puts a “limited Bitcoin ETF” as part of a much larger ETF. According to the prospectus, the fund will invest in a portfolio that contains both fiat and virtual currencies.
Partial Bitcoin ETF Offers Reduced Risk
Concerning the cryptocurrency aspect of the fund, the filing document states that there are plans to invest in other Bitcoin futures contracts apart from those offered by CME and Cboe. While the fund can, in theory, invest as much as 25 percent of its asset value in BTC futures, there are modalities in place that will limit notional exposure to 15 percent of the fund’s net asset value.
This limited exposure might put the application in good stead with U.S. regulators. The SEC has consistently maintained a position of not wanting to approve BTC ETFs based on several issues surrounding volatility, market manipulation, and absence of institutional-grade custody. Investors in the proposed ETF will not have full exposure to the risks regulators say are attached to the Bitcoin and cryptocurrencies in general.
Meanwhile, the hunt for an SEC-approved BTC ETF continues. Earlier in the year, Bitwise filed another application with the Commission. The VanEck/SolidX proposal originally withdrawn by Cboe during amid the shutdown has also been refiled. Speaking recently, Robert Jackson Jr., an SEC Commissioner declared that an approved BTC ETF was inevitable.
Possible On-Ramp for Institutional Investors
Since the news became public there been a slew of positive comments regarding the innovative approached used by the company. Tom Lee of Fundstrat lauded the idea of a currency diversified fund with a Bitcoin component in a tweet published on Monday.
Other commentators seemed partial to the idea of moving the narrative towards recognizing cryptocurrency as an asset class by including virtual currency in an ETF. For Reality Shares CEO, Eric Ervin, the move represents a viable on-ramp for wary institutional investors based on the limited exposure to BTC in the ETF.
Currently, the cryptocurrency space is abuzz with positive developments on the institutional investment front. Two pension funds based in Virginia have become the first in the U.S. to invest in a cryptocurrency investment fund. The fund, established by Morgan Creek Digital focuses is presently worth $40 million with investments in notable companies like coinbase and Bakkt.