SEC approval of spot bitcoin ETF would attract more institutions – CIO

A Securities and Exchange Commission-approved spot bitcoin exchange-traded fund would be a "major milestone" likely to bring more institutional investors into the cryptocurrency asset class, according to Matt Hougan, CIO of Bitwise Asset Management, which is seeking SEC approval for a spot bitcoin offering.

Bitwise, a crypto asset manager, is seeking SEC approval for its Bitwise Bitcoin ETP Trust, an exchange-traded product. The offering would be registered with the SEC in accordance with the Securities Act of 1933 and would not be a fund registered under the Investment Company Act of 1940, according to an Oct. 14 preliminary prospectus.

While the SEC has approved bitcoin futures ETFs, it has yet to approve a spot bitcoin ETF — one that holds actual bitcoin, Mr. Hougan said.

Bitwise, which managed $1.2 billion across its suite of investment solutions as of March 31, already works with institutional investors, Mr. Hougan said during an interview with Pensions & Investments at last week's Exchange: An ETF Experience conference in Miami. The CIO was asked whether a spot bitcoin ETF might have a role among institutional investors such as pension funds.

"So Bitwise already works with certain institutions to gain exposure to the crypto market, through private placement funds and other institutional strategies," Mr. Hougan said. "An ETF would make it vastly easier because it's a familiar instrument."

In addition to bringing down costs for institutions seeking to access the crypto market, the availability of a spot bitcoin ETF would also bring with it the more traditional investor protections that institutions are used to, Mr. Hougan said.

"So, I think it would be easier to get through the board," he said.

Bitwise's institutional clients include outsourced CIO firms, hedge funds and large family offices, according to Mr. Hougan. During a follow-up interview Tuesday, the CIO was asked to identify the institutional clients to which he was referring, but he did not provide names.

Regulatory uncertainty around the crypto market is among things keeping many institutional investors out of the market, Mr. Hougan said last week.

"Regulations are still evolving, and the approval of a spot ETF would be a major milestone in the maturation of that regulatory framework," Mr. Hougan said, adding that as a result, it would likely "give more confidence to more institutions and therefore bring them over into the space."

Mr. Hougan believes institutions "are looking aggressively at crypto because it's an interesting alternative asset," he said.

"It has high historical returns, it has low correlations to other assets, it's liquid unlike most alternatives," Mr. Hougan said. "And so, as a small portion of a portfolio, I think the volume of interest from the institutional community is growing in crypto more broadly, and an ETF would just make it so much easier."

Bitwise currently offers two publicly traded funds, the $813 million Bitwise 10 Crypto Index Fund and the $104 million Bitwise Crypto Industry Innovators ETF. Its website also lists 11 funds open to accredited investors only.