A flurry of exotic cryptocurrency exchange traded funds could be unleashed in the US in the wake of Donald Trump’s election victory, industry figures believe, transforming the sector.
Crypto ETF providers finally won their decade-long battle to launch “physically backed” bitcoin ETFs in the US in January, after the Securities and Exchange Commission, the regulator, lost a court case brought by digital assets pioneer Grayscale.
Spot ether ETFs have also now been permitted, but filings for a rash of ETFs predicated on other digital tokens such as solana, Ripple’s XRP and litecoin, as well as a potential basket product featuring an array of cryptocurrencies, courtesy of Grayscale, have so far failed to progress.
In contrast, Europe boasts exchange traded products investing in about 30 different cryptocurrencies, according to data from ETFbook.
US crypto advocates place a lot of the blame for this discrepancy on SEC chair Gary Gensler, who famously decried crypto as the “Wild West”.
Industry figures are hopeful that Trump, who has pledged to turn the US into “the bitcoin superpower of the world”, will replace Gensler — widely expected to resign in the wake of the election result — with someone who is more crypto friendly, unblocking the logjam of filings.
“[The] election was a massive win for crypto. It’s a complete game-changer,” said Matt Hougan, chief investment officer of Bitwise Asset Management, which has filed for an XRP ETF.
“For the past four years, crypto has been operating with one arm, maybe two arms, tied behind its back. It’s faced a hostile SEC, major regulatory uncertainty [and] constrained access to basic banking services.
“Imagine what happens when the headwinds abate,” Hougan added. “I think we’ll see an explosion of crypto applications and adoption that significantly impacts the real world.”
Matt Sigel, head of digital asset research at VanEck, who described the asset manager’s June filing for a solana ETF as a bet on a Trump victory, believed “the Trump administration will be friendlier to encouraging innovation and capital formation in digital assets.
“The SEC was sued, like a deadbeat parent that did not pay their child support would be sued in court,” he said of the Grayscale case.
“It was Gary Gensler’s SEC that broke with long-standing tradition with the rules-guided process and regulated through enforcement. Going back to the usual disclosure-based system would create scope for more innovation in this space”.
This was likely to translate into more digital asset ETFs, Sigel believed.
“We would expect the SEC to approve more crypto products than they have in the past four years,” he said. “I think the odds are overwhelmingly high that there will be a solana ETF trading by the end of next year.”
However, the SEC told the FT that even before the start of Gensler’s term in 2021, his Trump-appointed predecessor, Jay Clayton, had “brought about 80 enforcement actions in the crypto space”, including denying every spot bitcoin ETF filing during his tenure.
The Commission also pointed to a speech given by Gensler on Thursday, in which he said crypto “is a field in which over the years there has been significant investor harm. Further, aside from speculative investing and possible use for illicit activities, the vast majority of crypto assets have yet to prove out sustainable use cases.”
But asset managers like VanEck have a more bullish view and after Trump’s victory became clear “[chief executive] Jan van Eck instructed the product development team to get back to work. We will see a lot more crypto ETFs from VanEck in the near future, and the industry at large,” Sigel added.
The post-election euphoria has also seen Canary Capital, a crypto specialist, file for the first HBAR ETF, adding to its pre-existing solana, XRP and litecoin applications.
Solana, XRP and a range of other digital tokens have risen about 30 per cent since the election amid expectations of more supportive regulation, including the potential ETFs.
Europe’s appetite for its zoo of exotic offerings suggests there could be strong demand in the US. European basket products and cryptocurrencies other than bitcoin and ether account for 29 per cent of the continent’s $13bn market, according to data from ETFbook. Scaled up to the size of the US market for bitcoin and ether ETFs, this would tentatively suggest demand for funds holding more esoteric crypto tokens could be somewhere around $55bn if they existed today.
Townsend Lansing, head of product at CoinShares, Europe largest provider of digital asset ETFs with $6.5bn of assets, said he was hopeful that a change at the top of the SEC would lead to “the possibility of a comprehensive stable legislative regime that sits alongside traditional securities legislation.
“That is completely missing in the US,” argued Lansing, who said CoinShares was keeping a watching brief on filing for ETFs in the US. “[Gensler] been a big driver of both the SEC and CFTC [Commodity Futures Trading Commission] regulating through enforcement. They are trying to fit crypto into these models, but crypto fits unevenly into this.”
In particular, Lansing said the SEC should revisit whether cryptocurrencies are commodities — as bitcoin and ether have been classified — or securities, which the regulator has argued other digital tokens are.
“I’m hopeful we’ll see a chair who is open to dialogue with the industry. I think we can make a lot of progress,” said Hougan, although he stressed that regulatory clarity should not mean a “regulatory free-for-all”.
Sigel believed the regime change could lead to the US becoming a crypto hub, not just for ETFs but for the likes of stablecoins and non-fungible token platforms as well.
“The SEC’s attack on the industry has shifted a lot of this activity abroad, to Europe and Australia. We are really looking forward to the US becoming a hub for product development, compared to the last four years where we have lost ground.”
