LatAm Firm Hashdex Joins Bitcoin Spot ETF Scrum With Distinct Plan

Instead of surveillance sharing with Coinbase, the company proposes using a regulated exchange.

Donovan Choy2 min read

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The largest crypto asset management firm in Latin America, Hashdex, is officially throwing its hat in the ring of SEC suitors seeking approval to operate a Bitcoin exchange-traded fund (ETF).

For years, the SEC has ignored or rejected Bitcoin ETF applications for cryptocurrencies—at least for spot markets. But when investing juggernaut BlackRock submitted an application for a Bitcoin spot ETF in June, it reignited industry interest around the possibility of such an investment vehicle. 

Encouraged by the firm’s historically high regulatory approval rate, other companies submitted their own applications, most of them emulating BlackRock's approach. Specifically, they proposed using a surveillance-sharing agreement with exchange giant Coinbase to monitor for potential fraud.

Hashdex’s ETF application, therefore, is unusual in its strategy: acquiring spot Bitcoin from within the regulated CME (Chicago Mercantile Exchange) market through its existing Bitcoin futures ETF.

UPDATE: We have another entrant into the spot #bitcoin ETF race. @hashdex has filed to be able to hold spot bitcoin in their bitcoin futures ETF — $DEFI pic.twitter.com/zH0noPFw4l

— James Seyffart (@JSeyff) August 25, 2023

According to its official NYSE Arca filing to the SEC, Hashdex proposes to “use the Exchange for Physical (EFP) Transactions to acquire and dispose of spot Bitcoin, instead of transactions on unregulated spot exchanges.”

This approach could provide financial regulators greater assurances, as cryptocurrency prices would be tracked by movements within a tightly regulated market instead of the broader unregulated crypto market.

Hashdex, with $435 million under management, touts itself as the first company to launch a crypto index ETF in Brazil, and the first in the world.

Alistair Milne, founder of Altana Digital Currency Fund, claims this would be “hard to reject” for the SEC.

This strategy is in contrast to the approach others have taken, using a “surveillance-sharing agreement with Coinbase that relies on financial institutions sharing market surveillance information. To date, such an agreement has been entered into by financial institutions such as Valkyrie, Wise Origin, WisdomTree, VanEck, Invesco Galaxy, and ARK 21Shares.

In a recent Hashdex blog post, the firm argued that Coinbase’s strategy was unconvincing, as “there has been no evidence that this addresses the SEC’s concerns.”

While the strategy is different, the goal is the same: convincing American regulators that they are taking active steps to safeguard their financial products from market manipulation.