Firm Files New ETF Proposal That Mixes Bitcoin Futures With Sovereign Debt
The crypto market could see the launch of a new exchange-traded fund (ETF) that mixes bitcoin futures with other conservative investment instruments if a proposal for the same gets regulatory approval.
Reality Shares ETF Trust, which already offers an ETF based on blockchain products, has filed Form N1-A with the U.S. securities agency seeking to launch the Reality Shares Blockforce Global Currency Strategy ETF on the NYSE Arca.
According to the filing documents with the Securities and Exchange Commission (SEC), the said fund would see investors exposed to several instruments in a mixed portfolio.
Among these, there will be exposure to “high-quality, short-term sovereign debt instruments” that the firm says will be listed for trading on major U.S. futures exchanges.
The sovereign debt instruments will be denominated in several leading currencies, including the U.S. dollar, euro, the British pound sterling, Swiss francs, and Japanese yen. Mixed in the portfolio will be bitcoin futures and money market mutual funds, the filing shows.
As for bitcoin futures, the fund looks to invest in cash-settled futures contracts, and not in physically settled ones. It means that at the expiry of a contract, the investor receives cash equivalents of the contract’s value, as opposed to getting actual bitcoins.
Reality Shares, therefore, will not be investing directly in bitcoin, but will instead use 15 percent of the fund’s assets to represent its “notional exposure in Bitcoin Futures.”
Another 15 percent will represent “Fixed Income Securities” that will be denominated in the above fiat currencies, while ten percent of the fund’s net assets will be in money market instruments.
According to the filing, the [firm’s] Advisor will “reallocate the Fund’s assets” by percentages as weighted in the Target Portfolio.
This action will take place “on the business day following the date that one or more of the Significant Global Currencies moves by more than 20 percent up or down from its original 15 percent portfolio equal-weight,” the filing states.
Reality Shares says that it will seek to invest in bitcoin futures currently available at the Cboe and CME – the leading Chicago futures exchanges. However, future developments could see it seek out similar bitcoin futures products.
The filing of the Reality Shares’ ETF follows applications by two crypto firms to have SEC approve their bitcoin-specific ETFs. Bitwise Asset Management, via NYSE Arca, filed for approval last month saying its product would be different from any of the proposals submitted at the time.
Meanwhile, the Cboe resubmitted the VanEck and SolidX proposal earlier this month after pulling it as a result of the partial U.S. government shutdown.
Both the Bitwise and VanEck ETFs differ from the Reality Shares’ proposal because the latter includes the sovereign debt instruments talked about earlier.
The SEC was expected to give its decision on the VanEck/SolidX proposal by February 27, the date being the deadline upon which the regulator would have either approved or rejected the ETF.
The SEC is yet to publish the Reality Shares’ proposed rule change in the Federal Register. Once it does, the regulator would have to give its decision within a maximum of 240 days.
In 2018, the agency rejected the Winklevoss twin’s ETF proposal citing concerns that it says the crypto market must address before any is approved. Optimism remains high though after an SEC commissioner expressed confidence that the regulator will “eventually” approve one.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.