(Bloomberg) -- U.S. exchange-traded fund issuers are getting increasingly creative as the Securities and Exchange Commission continues to demur on approving a pure cryptocurrency fund.
While the bulk of its holding will be in U.S. stocks, the Simplify U.S. Equity PLUS Bitcoin ETF (SPBC) will invest up to 15% of its assets in cryptocurrencies, either “indirectly and solely” through the $34 billion Grayscale Bitcoin Trust (GBTC), according to a Tuesday filing.
The filing is the latest example of how ETF issuers are finding workarounds to the SEC’s stance on crypto, with regulators citing everything from market volatility and industry manipulation to thin liquidity in repeatedly batting down attempts. Buying shares of GBTC, which invests solely in Bitcoin, provides access to the largest cryptocurrency’s price movements without having to physically purchase the coins since it is a trust. Additionally, seeking exposure through an ETF with a set ceiling on how large the Bitcoin portion of the portfolio can grow protects investors from having to pay capital gains taxes, according to Bloomberg Intelligence.
“I’m sure most will ask, ‘Well, can’t I just do this myself with two ETFs?’ but an advantage in this case is the fund rebalances for you, so you will avoid any capital gains,” said BI analyst Athanasios Psarofagis. “It’s an interesting idea, because it gets people thinking about Bitcoin as an actual portfolio allocation versus something more speculative.”
Bitcoin has surged nearly 600% over the past year, taking the coin to a record $58,350 in late February. Investors rushing for access plowed into vehicles such as GBTC and the Bitwise 10 Crypto Index Fund (ticker BITW), boosting those products to absurdly high markups amid the mania.
The first North American Bitcoin ETFs debuted in Canada last month. The Purpose Bitcoin ETF (BTCC) has already amassed roughly $464 million in assets, while the Evolve Fund Group’s Bitcoin ETF (EBIT) has attracted $42 million so far. While Wall Street awaits approval, funds like SPBC should gain traction with financial advisors, said Financial Enhancement Group’s Andrew Thrasher.
“This fund will appeal to a lot of advisors who have had an interest in getting exposure to Bitcoin or have clients asking for crypto,” said Thrasher, a portfolio manager with the firm. “This gives the potential to have Bitcoin exposure within a traditional custodian account in an ETF wrapper, which hasn’t been done in the U.S. due to SEC resistance to approve a pure Bitcoin ETF.”