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The race to get a bitcoin exchange-traded fund approved in the US looks as if it will come to a head at some point in 2021.
Nate Geraci, the president of The ETF Store, told Insider last week that he believes a fund will be approved before fall — in late August or early September.
When one is finally approved, it's likely to mean big money for the issuer, esopecially if the Securities and Exchange Commission decides to only approve one initially. Since the Purpose Bitcoin ETF was approved as the first in Canada in February, it has taken in over a billion dollars.
If this is the case, Geraci said he thinks VanEck is in the best position to be the first approved.
But there is also the possibility that the SEC approves multiple funds at once in an attempt at fairness. CFRA Research's Head of ETF and Mutual Fund Research Todd Rosenbluth told CNBC on Monday that he sees this as the most likely outcome.
But even if this doesn't happen at first, Geraci said that he expects that once one is approved, more approvals will quickly follow suit.
That said, marketing the products will play an outsized role, he said. This is playing out in the space already, he said, with well-known names like Anthony Scaramucci involved in launching funds.
This would also mean that a "ruthless fee competition" will follow approvals in a bid to attract investors.
"If you look at the Canadian market, the first two bitcoin ETFs launched with expense ratios of 1%. And literally a day or two later, one of the ETFs — the second one to market — chopped it's fee by 25 basis points," he said.
But liquidity, or the ability of investors to buy and sell their shares easily, will also play an important role, he said. This has been the case in the gold ETF space.
"We can look to the gold ETF space, and interestingly, even still today the largest gold ETF is the Spider Gold Trust (GLD) which has the highest expense ratio at 40 basis points. And the primary reason for that is it was first to market, it's used by a lot of institutions, it has extremely high liquidity."
Advocates for a bitcoin ETF argue that it provides investors with a way to gain exposure to the price of the digital asset without having to physically store it — similar to how a gold ETF functions. While funds like the Grayscale Bitcoin Trust (GBTC) exist, it is not traded on an exchange and therefore cannot be accessed through a traditional brokerage account.
But opponents to a bitcoin ETF have expressed concerns about manipulation of the cryptocurrency and about its credibility as a viable asset with its extreme volatility.
With increasing adoption of it, however — Morgan Stanley, for example, recently announced that they would provide bitcoin fund access to their wealth management clients — an ETF coming to fruition looks to be more and more likely.How investors can navigate the mad dash for bitcoin ETF approval
In a note sent on Wednesday, Geraci said he expects investors to pile into the first bitcoin ETF approved. But investors could then take advantage of the fee war and move their money into a lower-cost product.
But in the scenario that multiple funds are approved at once, investors may be better off just waiting, he said.
"If it becomes apparent the SEC will approve multiple bitcoin ETFs within a short timeframe, I think it would behoove investors to wait for several products to come to market so they can evaluate aspects like fund costs and liquidity," Geraci said. "Investors have waited this long…what's another few weeks at this point?"
As far as owning bitcoin, Geraci said there is a case for allocating a small portion of a portfolio to it. However, he stressed that there is still "clearly risk around the asset class itself."
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