Cathie Wood’s Ark Invest has taken another step in its quest to launch a Bitcoin spot exchange-traded fund (ETF) by filing a second amended application on October 11. This updated application includes additional risk warnings related to the Bitcoin network, which could potentially impact the ETF’s price. The changes also cover various other adjustments to the proposal. One of the new risks introduced pertains to electricity consumption, an issue that has long been a concern in the cryptocurrency community.
Ark Invest updates warnings list on its new filing
The energy-intensive nature of Bitcoin mining has raised environmental and sustainability questions, which Ark Invest is acknowledging in its application. Another risk mentioned is a community-driven upgrade to Bitcoin’s source code. This highlights the potential for changes to the core technology, which can have a profound impact on the functionality and security of the network. Competition within the cryptocurrency industry is also addressed in the amended application.
The ETF application recognizes that the landscape for digital assets is constantly evolving, with new projects and competitors emerging regularly. These competitive factors could affect the ETF’s performance. One crucial aspect of the updated application is the stipulation that the custodian, in this case, Coinbase, will hold the assets backing the ETF in segregated addresses on the Bitcoin blockchain. This segregation ensures that the ETF’s assets are separate from corporate or other customer assets.
This is a significant detail, as it aims to prevent any commingling of funds, a practice that can lead to issues and potential misuse of investors’ assets. The mention of commingling is notable, given the recent legal issues faced by Sam Bankman-Fried, the co-founder of the now-collapsed FTX exchange. Bankman-Fried is currently on trial, facing charges related to commingling user funds, which is a serious concern in the world of cryptocurrency exchanges. Ark Invest initially submitted its application for a Bitcoin ETF in April of this year, following a rejection in 2021.
The regulatory environment in the crypto space
Ark Invest also resubmitted its proposal just two months before the heavyweight investment firm BlackRock filed its application. BlackRock’s entry into the Bitcoin ETF race signaled the growing interest in bringing cryptocurrency investment products to the mainstream. In July, Ark Invest made amendments to its application to align it with BlackRock’s proposal. This step was taken to address concerns from the U.S. Securities and Exchange Commission (SEC) regarding market manipulation. The revised application also included a surveillance-sharing agreement, demonstrating Ark Invest’s commitment to addressing regulatory concerns.
The latest amendment to the ETF application, as described by Alistair Milne, a prominent Bitcoin investor and co-founder and CIO at Altana Digital Currency Fund, consists of “minor edits and details.” This suggests that Ark Invest is actively responding to feedback from the SEC as it engages with the regulatory body more comprehensively. Environmental concerns and the potential impact of illicit transactions are now explicitly mentioned in the updated application. Ark Invest acknowledges that issues like excessive energy consumption and the possibility of illegal activities could adversely affect both the Bitcoin industry and investment in the ETF.
Eric Balchunaus, an ETF expert at Bloomberg, noted that the updated application now includes “five extra pages” with various details woven throughout. He sees this as a positive step forward and solid progress toward obtaining approval for the industry’s first spot Bitcoin ETF. Ark Invest’s second amended application for a Bitcoin spot ETF addresses additional risks and concerns, including electricity consumption, potential code changes, and industry competition. It also emphasizes the importance of segregating assets to prevent commingling. With these adjustments, Ark Invest continues its efforts to gain approval for a Bitcoin ETF.
