SEC Simultaneously Approves Hashdex and Franklin’s Bitcoin-Ethereum Exchange-Traded Funds (ETFs)

In a significant development for the cryptocurrency market, the United States Securities and Exchange Commission (SEC) has given the green light to Hashdex and Franklin Templeton’s respective Bitcoin and Ether index exchange-traded funds (ETFs).

Approval Details

On December 19, the SEC announced its approval of Hashdex’s Nasdaq Crypto Index US ETF, which will be listed on the Nasdaq stock market. The regulator also approved the Franklin Crypto Index ETF, destined for the Cboe BZX Exchange.

Index Composition

Both indexes will hold spot Bitcoin (BTC) and spot Ether (ETH). The Franklin Crypto Index ETF tracks the Institutional Digital Asset Index, a benchmark designed to represent the performance of digital assets such as Bitcoin and Ether. In contrast, Hashdex’s Crypto Index ETF will track Bitcoin and Ether, which are included in the Nasdaq Crypto US Settlement Price Index.

Background

The SEC has given approval for Hashdex and Franklin Templeton to list and trade shares of their crypto index ETFs. This decision was based on the amended filings, the trusts’ structures, and the operation terms from both firms being "substantially similar" to spot Bitcoin ETP and spot Ether ETP proposals already approved under previous SEC orders.

SEC Approval Criteria

The commission also said that the proposals met the criteria of the Exchange Act, which requires issuers to have rules in place to prevent fraudulent and manipulative acts and protect investors and the public interest, among other requirements.

Market Impact

Nate Geraci, president of The ETF Store, an investment adviser specializing in ETFs, speculated that the SEC’s approval may inspire other firms to copy the move. "Will be interesting to see if BlackRock or others attempt to piggyback on this & launch similar ETFs," he said.

Demand and Diversification

Geraci added: "Regardless, I expect there will be meaningful demand for these products. Advisers LOVE diversification. Especially in an emerging asset class such as crypto." This sentiment highlights the growing interest in cryptocurrency investment opportunities among institutional investors.

Previous Applications

In August, Franklin Templeton applied to the SEC for approval of its crypto index ETF, but the regulatory agency delayed the decision on November 20. Asset manager Hashdex submitted its second amended application for an ETF on November 25. It filed its first amended S-1 in October after the SEC asked for more time to decide whether to authorize the proposal.

Competing Firms

Franklin Templeton and Hashdex were not the only firms looking to launch a crypto index ETF in the United States this year. On November 26, the securities exchange NYSE Arca requested to list a Bitwise ETF holding both Bitcoin and Ether. In October, NYSE Arca also expressed interest in listing a Grayscale crypto index ETF holding a diverse basket of spot crypto.

Regulatory Considerations

In November, US regulators indicated they were considering the listing for approval. This development highlights the ongoing regulatory efforts to provide clarity on the listing process for cryptocurrency-based ETFs.

Use Cases and Opportunities

The introduction of these index ETFs offers several use cases and opportunities for investors:

• Diversification: By providing exposure to Bitcoin and Ether, these ETFs can help investors diversify their portfolios and reduce risk.
• Convenience: Index ETFs offer a convenient way to gain exposure to cryptocurrency markets without having to directly invest in individual assets.
• Accessibility: The listing of these ETFs on major stock exchanges makes it easier for institutional investors and retail traders to access the cryptocurrency market.

Conclusion

The SEC’s approval of Hashdex and Franklin Templeton’s Bitcoin and Ether index ETFs marks a significant milestone for the cryptocurrency industry. This development demonstrates the growing acceptance of digital assets as legitimate investment opportunities and provides a new avenue for institutional investors to gain exposure to the cryptocurrency market.

Future Outlook

As more firms consider launching similar products, it will be interesting to see how the regulatory environment continues to evolve. Will we see a surge in demand for these products? What implications will this have on the broader market?

One thing is certain: the SEC’s approval of these ETFs has opened up new opportunities for investors and marks a significant step forward for the cryptocurrency industry.

References

• SEC Notice (Dec 19): https://www.sec.gov/news/press-release/2022-312
• Nate Geraci’s post on X: https://x.substack.com/p/sec-approves-hashdex-and-franklin-templeton&utm_medium=email&utm_source=notify
• The ETF Store: https://www.etfstore.com/
• NYSE Arca’s Request to List Bitwise ETF: https://www.nysearca.com/media/news_releases/2022/11/26/nasdaq-requests-to-list-bitwise-ethereum-etf#.X5gKoQpLBIU
• Grayscale’s Crypto Index ETF: https://www.grayscale.com/cryptoindex#