trust

Institutions ‘extremely interested’ in crypto ETFs, but buying has cooled: Survey

Almost half of the fund managers surveyed plan to add crypto ETFs to their portfolio in 2023, but only a quarter will be increasing digital asset exposure.

Institutional interest in cryptocurrencies hasn’t budged despite the market being down 60% from its all-time highs, as a majority of asset managers stated they’re “extremely interested” in crypto-themed Exchange Traded Funds (ETFs).

On April 3, financial services firm Brown Brothers Harriman (BBH) released its 2023 Global ETF Investor Survey, which polled 325 institutional investors, financial advisers and fund managers from the United States, United Kingdom, Europe and China.

It found nearly three-quarters of institutional investors claimed they’re “extremely” or “very” interested in crypto ETFs, but the effects of crypto winter appear to have chilled their appetite. Only a quarter said they’re expecting to increase allocation to crypto ETFs over the next 12 months, a 6% fall from 2022.

While crypto-themed ETFs fell down the priority list for some, nearly half still plan to add crypto ETFs to their portfolios this year to diversify investments.

58% of fund managers in China are looking to add crypto ETFs to their portfolios, followed by the U.S. (55%) and Europe (29%). Source: BBH

BBH explained the rise in interest for crypto ETFs is partly due to fund managers learning to stomach the inevitable volatilities in the crypto market:

“As investors adapt to volatility, they are diversifying their portfolios and adding more innovative products. Even with a tumultuous year in crypto, interest hasn’t cooled entirely.”

BBH believes a clearer crypto regulatory framework will further increase the demand for related ETF exposure as it will provide more “comfort” when doing business with the crypto sector:

“Initiatives such as the draft regulation from the EU’s Markets in Crypto Assets proposal is expected to significantly ‘derisk’ investments in crypto assets for asset managers and provide an ‘additional layer of comfort’ for fund managers to engage with crypto exchange.”

More than 40% of the respondents claimed to manage assets worth more than $1 billion and over half said to have more than a quarter of their portfolio invested in ETFs.

Related: Samsung investment arm to launch Bitcoin Futures ETF amid rising crypto interest

Among the largest crypto ETFs are ProShares Bitcoin Strategy (BITO), available on the New York Stock Exchange (NYSE), and the Bitwise 10 Crypto Index Fund (BITW). BITO was reportedly the first bitcoin-linked ETF launched in the United States, while BITW tracks the top 10 largest cryptocurrencies by market cap.

Grayscale’s Bitcoin Trust (GBTC), while not an ETF, is one of the largest digital asset investment products by market cap traded on a stock exchange, with a current value of $11 billion according to Google Finance.

Not all crypto ETFs have fared well, as the effects of the crypto market winter saw two Australian crypto ETFs — BetaShares Crypto Innovators ETF (CRYP) and Cosmos Global Digital Miners Access ETF (DIGA) — take the title as the worst-performing ETFs in the country.

This resulted in DIGA, along with Cosmos Purpose Ethereum Access ETF (CPET) and Cosmos Purpose Bitcoin Access ETF (CBTC), being delisted at the end of 2022.

Magazine: Crypto winter can take a toll on hodlers’ mental health

Court to hear oral arguments in Grayscale’s lawsuit against the SEC in March

Grayscale had expected it wouldn’t be able to voice arguments until the second quarter, and is calling the quicker timeline “welcome news.”

A United States appeals court is set to hear the oral arguments relating to Grayscale Investment’s lawsuit against the Securities and Exchange Commission (SEC) over its decision to deny Grayscale’s Bitcoin (BTC) spot exchange-traded fund (ETF).

According to a court motion filed on Jan. 23, both sides will present their arguments at the District of Columbia Court of Appeals on March 7, at 9:30 am local time.

Oral arguments are spoken presentations delivered by attorneys summarizing why their clients should win the case. Each party in the case takes turns directly speaking and answering questions from the judge and is given equal amounts of time to do so.

In a tweet on Jan. 24, Grayscale Chief Legal Officer Craig Salm said the newly filed motion was “welcome news” as they were previously anticipating oral arguments to be scheduled “as soon as Q2.”

The composition of the argument panel in the Grayscale case will be revealed on Feb. 6, 30 days prior to the date of the oral argument, while the amount of time for the argument will be set in a separate order, according to the motion.

Grayscale updates its appeals timeline with the date for the Oral Arguments motion Source: Grayscale

Grayscale initiated its lawsuit against the SEC in June after the regulator rejected its application to convert its $12 billion Grayscale Bitcoin Trust (GBTC) into a spot-based ETF.

Earlier this month, Grayscale filed a reply brief with the D.C. Court of Appeals, claiming the SEC acted arbitrarily in treating spot-traded ETFs differently from futures-traded products and that the SEC exceeded its authority when it denied Grayscale’s application for a Bitcoin ETF.

Related: SEC’s ‘one-dimensional’ approach is slowing Bitcoin progress: Grayscale CEO

Grayscale CEO Michael Sonnenshein reiterated a similar point during an interview on CNBC’s Squawk Box on Jan. 24, stating:

“It’s important to remind the role that regulators like the SEC play when it comes to investors. They’re not here to tell investors what to or what not to invest in. They’re here to ensure all the proper disclosures are made […] so [investors] are aware of all the risks associated.”

Sonnenshein said they were “certainly expecting” a decision from the courts regarding its case against the SEC in “Q2 or Q3 of this year.”

“The frustrating thing for investors and certainly the Grayscale team is that we’re actually a business that was born in the U.S., made use of existing U.S. regulatory frameworks to bring crypto to investors in a safe and compliant way.”

“Meeting with both houses yesterday and today, what we’re really hearing […] is that had the SEC already approved this spot-Bitcoin ETF […] a lot of the recent investor harm we’ve seen in crypto would’ve been prevented,” he added.

Grayscale fires first salvo in case against SEC over Bitcoin ETF refusal

The SEC must submit its brief by Nov. 9. After that, Grayscale will then submit a reply brief on Nov. 30 before both parties submit a final brief on Dec. 21.

Digital asset manager Grayscale has filed its opening brief against the United States Securities Exchange Commission (SEC) to challenge its decision denying Grayscale’s application to convert the Grayscale Bitcoin Trust (GBTC) to a spot Bitcoin exchange-traded find (ETF).

The world’s largest digital asset management firm filed its opening legal brief on Oct. 11 in the U.S. Court of Appeals in the District of Columbia Circuit, in which it claimed the SEC’s knockback to be “arbitrary, capricious and discriminatory.”

Grayscale argued that the SEC treats spot Bitcoin (BTC) exchange-traded products (ETPs) with “special harshness” and is doing so “in excess of its statutory authority.”

Attorneys for Grayscale argued that several Bitcoin futures ETFs that have been previously approved by the SEC generate their prices based on the same indexes as the spot Bitcoin ETF.

They stated that the SEC could not rationally conclude that Bitcoin Futures ETFs do not take on “the very same risks in the very same market” as the spot Bitcoin ETF, adding:

“Although Bitcoin may be a relatively new asset, the legal issue here is straightforward. The Commission has violated the APA’s most basic requirements by failing to justify its vastly different treatment of Bitcoin Futures ETPs and spot Bitcoin ETPs.”

Grayscale also argued that the SEC’s “significant-market test” — one which assesses whether an exchange’s proposal to list an ETP is “designed to prevent fraudulent and manipulative acts and practices” — is “flawed” and that the SEC “set the bar so high” that it couldn’t possibly be satisfied.

Attorneys for Grayscale also noted that this significant-market test only applies to Bitcoin-related ETPs, which led them to believe that they have been discriminated against.

Grayscale also argued the SEC’s decision “harms the 850,000 investors who own shares in the Trust:”

“Given that the Commission did not approve the Trust to trade as an ETP on the Exchange, the value of its shares cannot closely track the value of the Trust’s underlying Bitcoin assets— depriving Trust shareholders of billions of dollars in value.“

“There is simply no justification for continuing to inflict such serious investor harm,” the brief stated.

Related: Grayscale legal officer says Bitcoin ETF litigation could take two years

The filing in the U.S. Court of Appeals comes after the SEC officially denied Grayscale’s application to convert GBTC to a spot Bitcoin ETF on June 29.

On the same day, Grayscale initiated litigation by filing a “Petition For Review.”

According to Grayscale, the SEC must submit its brief by Nov. 9. Grayscale will then submit a reply brief on Nov. 30 before both parties submit a final brief on Dec. 21.

Grayscale had $26.4 billion in assets under management in March 2022.

PayPal adds to list of crypto heavy hitters on the TRUST network

PayPal has stepped up its regulatory compliance by joining TRUST to streamline its reporting requirements relating to the digital assets “travel rule.”

Crypto-friendly digital payments giant PayPal has been added to the Travel Rule Universal Solution Technology (TRUST) network, joining a host of big names in crypto that have moved to comply with digital asset travel rules.

The announcement comes two months after the payments giant rolled out infrastructure enabling users to transfer, send and receive digital assets between PayPal and other wallets and exchanges in June this year. Prior to that, users were only able to buy and sell crypto within PayPal, following the firm’s initial jump into the sector in October 2020.

TRUST was launched by a group of 18 United States virtual asset service providers (VASPs) in February, with heavy hitters such as Coinbase, Paxos, Circle, Kraken and Robinhood participating from the get-go. The number has since expanded to 38 now that PayPal has joined the ranks.

“The addition of PayPal marks another milestone in TRUST’s journey to become the global, industry-standard solution for Travel Rule compliance,” Coinbase noted in a Tuesda announcement.

Under the Bank Secrecy Act (BSA) rule 31, more commonly known as the Travel rule, U.S. VASPs are legally required to pass on specific information relating to customer fund transfers from one financial institution to another. The threshold for identifying fund transfers, and the people behind them, start at $1,000.

As such, the group of U.S. VASPs launched TRUST to streamline reporting and make the sharing of information between them easier and more transparent. TRUST utilizes a solution that is composed of two main features; a centralized bulletin board to identify each VASP party on both ends of a transaction and an encrypted point-to-point (P2P) channel to securely exchange data.

Related: Self-regulatory orgs for crypto keep ecosystem afloat pending clear regulations

The group was formed in response to a recommendation from the Financial Action Task Force (FATF) in June 2021 for VASPs across the globe to adopt specific principles in order to maintain compliance with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) policies.