The surprise decision of Invesco to abandon the launch of a Bitcoin exchange-traded fund in the United States was partly due to their opinion that it would become too costly for investors because of regulatory constraints. Last month, the asset manager worth $1.6 trillion had shelved its plans of launching a Bitcoin Strategy ETF only a few hours before it was due to be listed in New York. The Invesco product would have been the second of its kind to be introduced, only 24 hours after ProShares Bitcoin Strategy launched its own ETF.
BITO’s debut turned out to be history’s second-strongest, as it saw around $1 billion shares exchanging hands on the very first day of trading. As of now, the value of BITO assets is about $1.3 billion. Invesco had put in a great deal of effort, money and time into producing the 75-page and 69,000-word filing. However, the asset manager told the Securities and Exchange Commission (SEC) that it wasn’t interested in pursuing the ETF anymore. According to the Atlanta-based firm, they were concerned about the suitability and cost for investors when they took this decision, particularly because bitcoin’s future curve is sloping upwards referred to as contango.
This would mean that there would be a loss for the fund when a front-month contract is rolled out into one that’s longer-dated. Another roadblock was the fact that it had become apparent that SEC was only willing to give approval for ETFs that would be exposed to bitcoin futures 100%. The global head of indexed strategies and ETFs at Invesco, Anna Paglia said that they though CME futures would be an effective element, but didn’t think it would be effective if they were 100% of the product. The ideal portfolio for Invesco was a mixture of physical bitcoin, swaps, ETFs, futures and private funds investing in the industry for protecting investors in case there is a liquidity problem.
Paglia said that their inability of doing so resulted in this decision. She said that their investigation of the space and the market had disclosed that there were other ways of offering exposure rather than going down this route and giving investors something that’s not aligned with what Invesco offers. She added that they had run a number of simulations and there had also been concerns about liquidity and capacity in the futures market. Paglia revealed that they had filed for a futures-based ETF within 24 hours of Gary Gensler, the chairman of the SEC, statement about his comfortability regarding a Bitcoin-based ETF that would be listed on the CME.
Previously, applications for ETFs had been rejected by the SEC, which was based on holding physical bitcoin because the SEC believes this market is vulnerable to manipulative and fraudulent practices and acts. She said that they were aware it was necessary to be the first to get out and this drove them into filing within 24 hours. But, they had done a ‘deep dive’ after filing to determine if it would be profitable for their investors and then decided to pull it.