Sun. Nov 28th, 2021


Invesco’s surprise decision to discontinue the launch of a bitcoin futures exchange-traded fund in the US was due in part to its view that regulatory restrictions would make it too expensive for investors, the manager revealed.

The $ 1.6-tonne asset manager last month unveiled plans to launch a Bitcoin Strategy ETF, just hours before the fund would be listed in New York.

The Invesco vehicle would have been the second such ETF to be launched just 24 hours after the ProShares Bitcoin Strategy ETF (BITO), who performed the second strongest debut in history with nearly $ 1 billion worth of shares changing hands on its first trading day. BITO currently has assets of $ 1.3 billion.

Yet, despite the time, effort and money involved in producing the 69,000-word, 75-page filing, Invesco has told the Securities and Exchange Commission it no longer wants to pursue the ETF.

The Atlanta-based company said that concerns about cost and suitability for investors were a major factor behind its decision, especially with the bitcoin-side futures curve usually sloping, known as contango, meaning a fund typically suffers a loss when it rolls a front. -month contract in a longer dated one.

One roadblock was that it became clear that the SEC was only considering allowing ETFs with 100 percent exposure to bitcoin futures.

“We thought CME futures would be a very effective element of the portfolio. We never thought they would be effective if they were 100 percent of the product,” said Anna Paglia, global head of ETFs and indexing strategies at Invesco, said.

Invesco’s ideal portfolio was rather a mix of futures, swaps, physical bitcoin, ETFs and private funds investing in the bitcoin industry, to help protect investors in the event of a liquidity crisis.

“Our inability to do that really drove our decision,” Paglia said. “The more we researched the market and the space, the more we realized there were better ways to offer this specific exposure instead of going ahead and giving investors something that did not match what they expected from Invesco.

“We performed a number of simulations and the cost of the role of the futures contracts resulted in a delay of 60-80 basis points. [a month], ”Said Paglia. “We are talking about some large numbers, 5-10 percent annualized. It was not intended to be ordinary vanilla replication of the [bitcoin] index without significant tracking error. ” She also cited concerns about capacity and liquidity in the futures market.

Paglia said Invesco applied for a futures-based ETF within 24 hours within 24 hours after Gary Gensler, chairman of the SEC, indicated that he was comfortable with the idea of ​​an ETF based on regulated bitcoin futures trading on the Chicago Mercantile Exchange is traded. The SEC has continued to deny applications for any ETF based on the possession of physical bitcoin itself, a market that the SEC believes is vulnerable to “fraudulent and manipulative acts and practices”.

“We knew it was very important to be the first to get out, so we filed within 24 hours of Gensler’s statement,” she said.

It was only after it was filed that Invesco took a “deep dive” to determine if the product and casing would be suitable for investors, Paglia said.

“We thought really long and hard before we pulled this filing. We know that people would ask questions and worry. It was easier to say ‘yes’ and see how it went as ‘no’ and explain the decision. We had to make this difficult choice and own the decision. I will do the same again. “

BITO is expected to be followed by nearly a dozen similar vehicles, but its only competition so far is from the $ 60m Valkyrie Bitcoin Strategy ETF (BTF) and the $ 9m VanEck Bitcoin Strategy ETF (XBTF), along with the $ 10m Global X Blockchain & Bitcoin Strategy ETF (BITS), a hybrid fund that invests in a mix of bitcoin futures and the shares of blockchain-related companies.

San Francisco-based Bitwise Asset Management, which manages $ 1.7 billion in crypto-related assets, was one of the other houses to withdraw a submission for a futures-based ETF.

Matt Hougan, chief investment officer, said it was “somewhat unusual” as “our filing involved a lot of work, a lot of legal work, intellectual work and business alignment work”.

He cited two factors for the decision. First, when Bitwise filed, “we felt there would be more flexibility in how the product is put together,” Hougan said, without the need to create a Cayman Islands subsidiary for tax purposes, and with the ability to like Canadian place. bitcoin ETFs along with futures contracts.

Second, Hougan said that BITO’s success in raising assets “overwhelmed” the ability of futures commission traders, middlemen who request or accept orders to buy or sell futures contracts, who responded by raising prices.

“Our view was that a futures-based ETF would be imperfect,” Hougan said. “When we filed, we thought it would be worth it, but cost built on cost – the contango, the commission dealers, added cost to work through a Cayman branch – so we finally decided it was not in the interest of long-term investors. ”

His view on existing futures-based ETFs is that “if you make a short-term bet [they] can be good. For long-term investors, there may be better opportunities out there. ”

“Ultimately, we want to bring a spot ETF to market,” Hougan added. “Eventually [there will] be location-based ETFs in the US. I do not think we will sit here in three years’ time and ask if there will be any. “

Invesco said it is currently focusing on alternative ways of providing exposure to cryptocurrencies. Tt has launched two crypto-focused stock ETFs and also hopes to eventually gain approval for a spot-based bitcoin ETF.



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