Index ETF strategy over Bitcoin [BTC] as the focal point, explains Bitwise CEO

On 30th July, CNBC Fast Money broadcast a panel discussion that included Hunter Horsley, who is the Co-founder and CEO of the asset management firm called Bitwise. Brian Kelly was also a part of the discussion, wherein they spoke about the SEC-regulated [The U.S. Securities and Exchange Commission] cryptocurrency ETF [Exchange-traded Fund] filed by Horsley.

The CEO told that his firm had its s-1 filing done for the first-ever index basket ETF last week. Last year, Bitwise also introduced a private index fund and has been operating it since then.

Despite the complexities such as dealing with trading partners, striking the NAV [Net Asset Value] daily, audits, tax, hard forks, airdrops, Horsley said that it is possible to effectively operate an index vehicle with the correct strategy. He added:

“We like the index strategy, our clients like the index strategy because many of them have an investment view that’s not specific to one coin. They think that something promising could come out of public blockchains… A cryptocurrency may emerge and be something really valuable and an index is a way of capturing that.”

He further mentioned that Bitcoin has been the center for several registered ETFs due to the narrative of Bitcoin being the digital gold. The gold ETF first arrived in the market in 2004, following which landed the commodity index in 2006.

Next, Horsley was asked about his opinion on SEC’s understanding of the cryptocurrency industry. According to him, SEC has a strong grasp on the working of the cryptocurrency space. Moreover, the authority has displayed a great deal of open-mindedness over the past year. Horsley also explained:

“I think they’re being cautious and that’s their job and that’s what we would hope they would do… Even just this year in the ICO markets, they’ve been doing enforcement, trying to clean up the space and so I don’t think that they’ll be in a rush to approve an ETF. We’re excited to talk to them about our experience running a vehicle… But this is what you would expect from them.”

Furthermore, Brian Kelly spoke about the index having multiple privacy coins and sought to discuss SEC’s expected stance on the same. On this, Horsley told the panel that Bitwise is looking forward to speaking with the SEC about the matter.

He also recalled the letter written in January by the Director of the Division of Investment Management at SEC, Dalia Blass and said that the issues are similar for all the large-cap assets. Moreover, apart from the index approach, privacy coins still require a lot of discussions.

Dalia Blass’s letter stated several concerns regarding ETF, custody, investor’s protection, liquidity, market manipulation and suchlike in the cryptocurrency space.

An excerpt from Dalia's letter | Source: SEC.gov

An excerpt from Dalia’s letter | Source: SEC.gov

Lastly, Horsley talked about the methodology of forming the index. He explained:

“…so the index follows a methodology. It’s a five-year diluted market cap so that five-year adjustment is to deal with a crypto specific feature which is that unlike equities there’s a continuously changing supply. The amount of Bitcoin will be different tomorrow than it is today. But it’s fundamentally your market cap weighing.”

He also added that the top assets are not capped as the goal of the index is to capture the most valuable assets. In the cryptocurrency market, this can be analogized with S&P 500 where a few top assets end up dominating the future.

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