For Wall Street, Bitcoin ETF Decision Could Answer '$1 Billion' Question

"I wish I knew the answer to your $1 billion question. Seriously."

That's Gabor Gurbacs, director of digital asset strategy at New York-based investment management firm VanEck, the company has been making headlines of late for a proposed bitcoin exchange-traded fund (ETF). No lightweight in the arena, though, the VanEck proposal has been deemed by some to have the best shot of being approved by the U.S. Securities and Exchange Commission (SEC).

Indeed, all eyes are on the SEC in the wake of its comment period, with a possible yes or no – or further delay – expected by Friday. Even so, Gurbacs is cautious about what to expect from the SEC in coming months.

When asked what he suspected the outcome would be, he deferred.

He told CoinDesk:

"Unfortunately, I don't know the answer. I do know that we have addressed market structure issues and this is a chance for regulators to bring bitcoin under existing frameworks and protect investors."

Still, if the measure fails, it won't be for a lack of effort.

For one, VanEck's specific proposal came about nearly three years ago when SolidX, a financial technology company also headquartered in New York, first began to work toward bringing a bitcoin ETF to market.

Since a partnership between VanEck and SolidX, announced in early June, commentary on the matter has since significantly increased in favor of approval. And it's not just crypto investors who are pushing the concept, but economists, CEOs, financial analysts and even one SEC commissioner herself (though the latter was made in support of a different bitcoin ETF proposal).

The difference

So, what makes the VanEck-SolidX bitcoin ETF unique? Simply put, it's different from past efforts such as the recently rejected Winklevoss ETF.

As Gurbacs explained, "it is an insured product." As such, the physical bitcoins backing ETF shares would be covered in case of "theft and hacks and losses of all sorts."

This, however, isn't the selling point for Phil Bak, a former managing director at the New York Stock Exchange and current CEO of Exponential ETFs.

The way Bak sees in, the insurance aspect of the VanEck/SolidX proposal may be useful but "could also open up a can of worms and more questions," explaining that "[the SEC is] always going to have some hesitation about claiming that anything is guaranteed or insured in any scenario."

No, the very "elegant" solution in Bak's mind that is unique and quite ingenious on the part of VanEck and SolidX is how it is designed to weed out non-accredited investors.

Bak explains:

"When you launch a new fund, you can arbitrarily set the initial N.A.V. and the initial trade price where you want and they come in around $20, $25…What they've done, they've announced that they're going to set the price to $200,000, which means you can't buy a fractional share. It means the minimum notional amount that an investor can put into the bitcoin fund is going to be $200,000, which means that by definition anybody who's trading the fund is an accredited investor."

And Gurbacs would completely agree.

In an interview with CoinDesk last week, Gurbacs affirmed that the ETF was "institutionally oriented."

"Today, the bitcoin markets are still 90-95 percent retail and institutions are looking for a way to get into these markets so the physical ETF we have tailored to institutions," he remarked.

Others see the ETF as a possible path to future products around crypto, including Eric Balchunas, senior ETF analyst at Bloomberg Intelligence.

Balchunas thinks of the institutionally-geared VanEck-SolidX ETF as the "bridge between not approving and approving an actual regular primetime-ready ETF with a share price that looks more normal," adding that this is one of the primary reasons why the SEC might consider the prospect of approving it as a "baby step towards a real ETF."

Long road ahead

Those differences aside, whether the SEC actually approves the proposed ETF remains to be seen.

For his part, Balchunas predicted a 5 to 10 percent likelihood of seeing the VanEck/SolidX proposal greenlit by the SEC this year.

To be clear, the proposal is currently at a stage frequented by all new ETFs – crypto or otherwise – wherein the partnering exchange (in this case, Cboe BZX Exchange) has filed for a "rule change" with the SEC in order to be included on the exchange listing venue.

According to Bak, even with approval by the SEC on this front, the partnering companies "would still need to get approval from the Division of Corporate Finance from the SEC," adding:

"There's a whole 'nother set of approvals that would still need to come."

Given that, in his view, a "blanket approval" is highly unlikely at the outset, Bak emphasizes that the SEC certainly has "the option to extend these things out over longer time frames," which has been the case for five other bitcoin ETF proposals in recent days.

Indeed, in light of all the commentary that has been sparked by the VanEck-SolidX bitcoin ETF, the proposal remains in early "registration" stages, which though Gurbacs insists has addressed all relevant concerns to do with "customer protection and compliance, price and validation, liquidity and a few other major outstanding issues" does not indicate a regulated bitcoin ETF is coming soon in the U.S.

"I think that what most people don't understand is that there's a formal process where you go back and forth with the regulators... They might say, 'Hey, let's work on this particular topic like pricing,' and they'll call us and we'll look at our indices," Gurbacs told CoinDesk, adding:

"We think we have done the work and the work is good enough to go but again… no one is going to know the date but the SEC."

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