Valkyrie’s filing rejected: SEC not ready for exotic futures


TL; DR Breakdown

  • SEC turns down the Valkyrie ambitions of having a leveraged Bitcoin fund.
  • The futures-backed fund falls under the Investment Company Act of 1940.

The U.S. Securities and Exchange Commission is not approving Valkyrie’s proposal for a leveraged Bitcoin fund. The regulatory authority has not planned on complex futures but direct future products.

The news came after Valkyrie Investments filed to offer a 1.25x  kind of fund just two days ago. Presently, the agency restricts the Bitcoin-related product to only those holding Bitcoin futures.

Valkyrie’s denial puts similar firms alert

Bloomberg’s ETF researcher Eric Balchunas said that Valkyrie’s misery could affect the inverse fund application.

Two days ago, ETF issuer Direxion filed for a fund that will offer managed short exposure to CME Bitcoin futures contracts.

According to Direxion, speculators can get short exposure by investing in a combination of financial tools like swaps or futures contracts. These instruments provide short disclosure to the Bitcoin Futures. Moreover, the fund can also short an ETF that invests in Bitcoin futures.

Nate Geraci, the President ETF Store, reported that other ETFs had filed for approval from AXS Investments. He noted that the inverse fund is not different from the Bitcoin Strategy ETF that has been approved.

Companies that provide unleveraged exposure to bitcoin futures contracts are like ProShares. The company recently launched BITO, achieving over $1 billion in two days.

First of its kind

The first U.S. bitcoin futures exchange-traded fund gave cryptocurrency enthusiasts a reason to be excited. The development had been expected for a while, and finally, it had arrived. It marks a significant step in legitimizing bitcoin.

For almost one decade, several investors have been pushing regulators to allow U.S. bitcoin ETF. The SEC has been dragging the process of embracing the asset. The agency was concerned about the possibility of fraud and manipulation in the bitcoin industry.

In August, SEC chairman Gary Gensler indicated that the regulatory authority could consider a futures-backed bitcoin ETF. They said that it would fall in the Investment Company Act of 1940. The law governs mutual funds and may protect investors from fraud.

Gensler warned that bitcoin futures ETFs are still a “highly speculative asset class despite the assurance of some investor protection. Investors are advised to take a while to learn more about the assets before investing to avoid losing money.

The funds will be linked to bitcoin, but the asset will not determine the currency’s value since the funds track the price of futures contracts, which are fickle.

Edith Muthoni

Edith Muthoni

Edith is an investment writer, trader, and personal finance coach specializing in investments advice around the fintech niche. Her fields of expertise include stocks, cryptocurrencies, blockchain, and cryptocurrency investments.

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