First Trust proposes new Bitcoin ETF amid SEC’s evolving crypto approach

Illinois-based First Trust recently submitted Form N1-A to the US Securities and Exchange Commission. This signals their plan to launch a crypto-backed exchange-traded fund named First Trust Bitcoin Buffer ETF.

Unlike expected spot Bitcoin ETFs, this fund will track the Grayscale Bitcoin Trust or similar products. It aims to mimic Bitcoin’s performance, offering indirect exposure to the leading cryptocurrency.

The “buffer” aspect of the ETF is a notable innovation. It’s designed to protect investors from up to 30 percent of losses in the underlying exchange-traded product (ETP). This feature is unique to buffer ETFs, also known as “defined-outcome ETFs.” These ETFs differ from traditional ones by limiting growth potential in exchange for downside protection.

First Trust, a firm with a 32-year history in financial services, has been focusing on ETFs, investment trusts and mutual funds. Their move towards a Bitcoin ETF marks another significant step for legacy financial institutions into the crypto market.

Bloomberg’s ETF analyst James Seyffart commented on the First Trust Bitcoin Buffer ETF. He described it as a unique strategy in the ongoing dialogue with the SEC, led by Gary Gensler. Seyffart anticipates more Bitcoin ETF applicants adopting similar strategies soon.

SEC’s new approach

Meanwhile, SEC Chair Gary Gensler noted a new approach towards Bitcoin ETF filings. During a CNBC interview, Gensler discussed past rejections of Bitcoin ETF applications. He mentioned that recent court decisions in DC have influenced their approach, hinting at a possible shift in the SEC’s stance. This could mean a greater openness towards approving a Bitcoin ETF.

Such a change by the SEC would have significant effects. An approved Bitcoin ETF would offer a more regulated and straightforward way for both institutional and retail investors to invest in Bitcoin. This bypasses the complexities of direct cryptocurrency ownership, like managing wallets and security risks.

Gensler also addressed the issue of fraud and compliance problems in the crypto sector. He highlighted the rampant fraud and noncompliance with securities laws and anti-money laundering regulations.

Despite these challenges, Gensler’s recent statements about re-evaluating Bitcoin ETFs suggest a potential shift in cryptocurrency regulation. The SEC is currently reviewing 10 to 12 spot Bitcoin ETF applications. A decision on spot Bitcoin ETFs is expected between January 10 and 15, 2024.

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