By Greg Cipolaro, Director of Global Research, NYDIG
Compiler: WEEX
This article mainly discusses two topics: 1. The number of applications for Crypto ETFs has surged in the past two weeks. What is their review process? 2. Financial technology giant PayPal has launched its own stable currency PYUSD. Can it replace the much-criticized BUSD?
The ETF Race Continues to Expand
The past two weeks have seen another surge in the number of sponsors looking to launch new ETFs on U.S. exchanges, this time focusing on futures products. The previous frenzy was sparked by BlackRock's application for a Bitcoin spot ETF, and the latest frenzy began with Volatility Shares' application for an Ethereum futures fund that trades on the CME. Since the July 28 filing, 12 additional funds have sought to take effect, including one with a potential issuance date ahead of Volatility Shares.
The new fund submission differs from existing spot Bitcoin applications in several key areas. First, the new ETF submission looks to invest in Ethereum or a combination of Bitcoin and Ethereum futures traded on CME. Once approved, these will be the first U.S.-listed ETFs to invest in Ethereum derivatives. Bitcoin futures ETFs have been launched since November 2021, the largest of which is the ProShares Bitcoin Strategy ETF (BITO) with an asset management scale of US$1.1 billion, but the Ethereum futures ETF has never been approved in the United States. The industry has made several attempts to launch Ethereum futures, but all previous applications have been withdrawn.
NYDIG Futures ETF Application Tracking
The second key difference is that the latest round of ETFs seeks protection under the Investment Company Act of 1940 (the '40 Act), while the spot Bitcoin ETF filed in mid-June seeks protection under the Securities Act of 1933 (the '33 Act). effective under protection. The '40 Act follows the same path as the 2021 Bitcoin Futures ETF, and its approval process is completely different from that of funds under the '33 Act. Compared with '33 Act funds that need to go through a multi-stage review process of up to 240 days in total, daily liquidity '40 Act funds initiated by registrants of other active funds only need to go through a 75-day notification period under Rule 485(a) . (Editor's note: Funds established under the '40 Act are usually open-end funds that investors can buy and redeem on a daily basis, so they are called "daily liquid '40 Act funds.") After 75 days, if a stop is not issued order, the registration statements for these '40 Act funds will be deemed valid and the funds may trade. This is the process BITO is going through in 2021.
If a modification is made to a registration that is already considered valid, the modification may take effect in 60 days or less. This is how Valkyrie leads Volatility Shares - by changing the Valkyrie Bitcoin Strategy ETF (BTF), which currently only holds Bitcoin futures, to the Valkyrie Bitcoin and Ethereum Strategy ETF, which holds both Bitcoin and Ethereum futures, you can Reduce the period considered valid from 75 days to 60 days.
Of course, there is no guarantee that these funds (whether futures or spot) will be approved. Although Bitcoin rose sharply after BlackRock's spot declaration, with an increase of more than 20%, the latest batch of futures ETFs did not seem to stir up much market ripples, with the spot prices of Ethereum and Bitcoin barely changing. This is very different from the situation when BITO was launched in 2021, which resulted in spot appreciation and basis widening. The events that occurred before and after the issuance of BITO are as follows:
August 3, 2021 - In a speech at the Aspen Security Forum, SEC Chairman Gary Gensler said: "I expect there will be filings regarding ETFs under the Investment Company Act (the '40 Act). The '40 Act and The combination of other federal securities laws provides important investor protection."
August 4, 2021 - BITO ETF files registration statement.
October 18, 2021 - 75 days after the filing of the registration statement, the BITO registration statement becomes effective.
October 19, 2021 - First day of trading.
Futures basis changes before BITO listing
As we said, we don't know how likely it is that these new futures ETFs or the spot ETFs filed in June will be approved. However, when it comes to futures products, we are convinced that with each passing day, the likelihood of approval, if not withdrawn or rejected, increases. Judging by the lukewarm market response to the filings, investors appear to have little confidence in their eventual approval. Perhaps the lack of market movement is an opportunity for brave investors. At the very least, we may know the answers to these questions in less than 2 months, which may be well before a final decision on an existing Bitcoin spot ETF.
PayPal's foray into stablecoins
This week, fintech giant PayPal entered the stablecoin space with the launch of PayPal USD (PYUSD). The stablecoin will be issued by the Paxos Trust company, just like the Pax Dollar (USDP) and Binance USD (BUSD), the latter of which caused considerable controversy, resulting in Paxos receiving a Wells Notice (to our knowledge no enforcement action has been taken) and was forced to close by the New York Department of Financial Services. It has been pointed out that PYUSD is a replacement for the ill-fated BUSD, and while they have similar characteristics in terms of issuers, proofs, reserve reporting, and blockchain network (Ethereum), this statement misunderstands the issuer's financial situation.
We believe that the key to PYUSD being different from BUSD lies in the strategic differences between the two institutions. Binance is an exchange, while PayPal is a payments group. Binance is largely a cryptocurrency-only exchange, meaning its trades are primarily quoted in cryptocurrencies such as Tether (USDT) rather than in U.S. dollars or other fiat currencies. This makes exchanges dependent on stablecoin issuers for both technical capabilities and regulatory compliance. Given the controversy surrounding Tether over the years, the potential risks of such a collaboration are understandable.
BUSD was launched in the fall of 2019, and since then, Binance has offered various incentive programs to increase BUSD trading volume, which is essentially a disguised version of 0-fee trading for major tokens such as Bitcoin. As a result, BUSD continued to grow in size and importance, and Binance also launched a program to convert competing stablecoin balances and transfers to BUSD (except Tether). The problem arose when Binance started "encapsulating assets" (holding collateral assets on one chain and then issuing assets on other chains (such as its own BNB chain), sometimes without corresponding collateral). With BUSD being shut down by regulators, Binance is offering free trading pairs on other stablecoins, such as TrueUSD (TUSD), which has an opaque ownership structure, and newcomer First Digital USD (FDUSD). Regardless of history, for Binance, stablecoins have always served to facilitate transactions and funds entering and exiting the platform.
PayPal, on the other hand, as a payments company, according to its press release, is promoting its new stablecoin primarily for purchases and money movement - transfer PYUSD to external wallets, transfers, purchase payments, conversion to other cryptocurrencies. As of now, we have not seen any exchange announce the integration of PYUSD, and of course it is still early. PYUSD needs a corresponding PYUSD trading pair to take off in the cryptocurrency trading scene. Of course, the technical integration of ERC-20 tokens on exchanges is a piece of cake. Given that we expect PYUSD to be used primarily to facilitate payments and remittances, we are excited to see where it is headed. It has the same fundamental problems as the U.S. dollar, for which currencies such as Bitcoin offer a very different economic outlook, but stablecoins have become one of the important use cases for digital assets.
Stablecoin competition track
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