Bitcoin ETF’s and Blockchain - Regulatory Challenges and the Way Forward

Abstract

Introduction of the Exchange Traded Funds (ETFs) in 1989 in the USA added another category to the bunch of asset classes that continues to gain increasing popularity not only with the Asset Management Companies but also the potential investors who had been looking eagerly for innovative ways of diversifying their investment portfolio. Among a host of theme-based ETFs which offer varied investment strategies and returns, Bitcoin ETFs are of relatively recent origin and have caught investors’ attention as a substitute for investment in cryptocurrency directly or through derivatives. Bitcoin ETFs have appeared on the horizon designing products backed by Bitcoin and Bitcoin backed structured products like Bitcoin futures etc. At the same time, there is a growing class of unregulated Bitcoin ETF, Trusts and other financial products that track the value of Bitcoin and trade on traditional market exchanges rather than cryptocurrency exchanges. Also, there is growing another asset class of Blockchain ETFs, operating many a time as a proxy for Bitcoin/Bitcoin ETFs that invest in companies having direct or indirect exposure to Blockchain. The instant paper attempts to examine the fundamentals of Bitcoin and Blockchain ETFs, Blockchain technology, the factors throwing up Bitcoin ETFs in to prominence and the issues relating to their legal recognition by the regulators. It also attempts to provide a governance model for effective regulation of the two without mutual overlapping either in investors’ comprehension or in practice.