The specter of wrongdoing has not enticed professional and amateur investors around the world to dive into cryptocurrency. The current market cap of bitcoin outstanding stood at $800 billion as of Jan. 17, according to Coinbase Global Inc., while Ether’s outstanding amount was $381 billion. And, in a September 2021 research report, Fidelity Digital Assets, a unit of Fidelity Investments Inc., found that one-third of US investors surveyed already held some form of digital asset.

(Only 3% of pension funds and endowments surveyed had exposure to crypto, and only 11% said they had a positive view of digital assets, compared to 47% and 38% for family offices, for example.)

Those looking for spot cryptocurrency exposure and the protection of a regulated investment product should currently look north to Canada or overseas to Europe.

Vlad Tasevski, chief operating officer and product manager for Toronto-based Purpose Investments, says he’s seen a “very large and diverse customer base – ranging from $100 billion pension plans and world-class hedge funds, to retail investors buying 10 shares at a time.”

Purpose offers several crypto ETFs, including a $1.3 billion Bitcoin ETF and a $321 million Ether ETF. Mr. Tasevski said that one of the company’s early challenges was to “bridge the settlement cycle mismatch between the crypto world, which has real-time settlement, and traditional ETFs and stocks, which settle on a T+2 basis”.

Ben Slavin, global head of ETFs for BNY Mellon Asset Servicing in New York, says the infrastructure is in place for spot crypto ETFs in the United States. “Some developments are new or different from existing ETFs,” he said. For example, removing the daily net asset value from the fund requires a further step in connectivity to crypto price sources. Additionally, determining funds procedures for a soft or hard fork (split) is unique to digital assets. However, other outstanding issues, such as regulatory and tax treatment or the accumulation of management fees, are “solvable variants on a very worn path”.

Whether these solutions see the light of day on U.S. exchanges will depend on how well ETP issuers meet all of the SEC’s questions.

“Issuers are narrowing down the SEC’s reasons for refusing spot crypto products,” said James Seyffart, ETF analyst for Bloomberg Intelligence.

Mr. Seyffart points to a November 29 letter from the law firm Davis Polk & Wardwell LLP on behalf of its client, Grayscale Bitcoin Trust, submitted to the SEC. In the letter, Davis Polk takes a look at bitcoin products based on existing futures contracts, saying such products are exposed “to the same risks of fraud and cash market manipulation” at the heart of the SEC’s conversion concerns. by Grayscale from its flagship fund into an ETF. The letter goes so far as to quote the Administrative Procedures Act that “the Commission must treat similarly situated products in a similar manner unless it has a reasonable basis for disparate treatment”.

Over the next few weeks, that claim will be put to the test as 24 spot or futures cryptocurrency ETFs await action (or no action) from the SEC, according to Bloomberg Intelligence.

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