While U.S. regulators have finally warmed up to Bitcoin futures-backed exchange-traded funds, it appears that more complex derivatives-based funds are a bridge too far for now.
Direxion, a provider of financial products known for its leveraged ETFs, pulled a request late Tuesday to launch the Direxion Bitcoin Strategy Bear ETF. The firm had submitted the application last Tuesday, and Securities and Exchange Commission staff requested it be withdrawn on the same day, the latest filing shows.
The withdrawal follows a similar move by Valkyrie, which was the second issuer to launch a U.S. Bitcoin futures ETF last month. Late last week, it dropped its application for the Valkyrie XBTO Levered BTC Futures ETF, which would deliver 1.25 times the reference price of Bitcoin. According to a filing, the SEC had also requested Valkyrie yank the filing last Tuesday.
The first U.S. Bitcoin ETFs launched last month, nearly a decade after the first applications were filed. The fact that the funds track Bitcoin futures -- rather than physically hold the cryptocurrency -- allowed products from ProShares and Valkyrie to launch, after SEC Chair Gary Gensler signaled he’d be more open to that structure. However, it’s clear that regulators aren’t ready to greenlight any exotic crypto ETFs yet, according to Bloomberg Intelligence.
“While it does seem a bit inconsistent given their acceptance of the Bitcoin futures markets, it isn’t surprising and is likely part of a ‘baby steps’ regulatory mindset,” Eric Balchunas, an analyst with Bloomberg Intelligence, said of the SEC’s request. “I bet we will see one someday, but only when they feel ready.”
Direxion didn’t immediately respond to a request for comment.
It’s not just crypto. In early October, Gensler published a statement announcing that regulators are looking into new rules for leveraged funds, and warning of the potential risks. Even so, appetite for derivatives-powered funds has been high.
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