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Hashdex's physically-backed Bitcoin ETF, utilizing CME OTC trading to address manipulation concerns

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Bitcoin continues to hold steady above 34K, and the community's confidence in a Bitcoin spot ETF is growing. Even Bloomberg ETF analyst James Seyffart retweeted an article about Hashdex applying for an ETF, suggesting that Hashdex's application is tailored to address every argument the SEC has raised in the past, making it difficult for the SEC to reject.

Hashdex Bitcoin ETF DEFI Transformation Application

Hashdex is an asset management company focused on cryptocurrency investments. According to its statistics as of the end of September, Hashdex's assets under management amount to $380 million, with a total of 14 cryptocurrency-related Exchange-Traded Products (ETPs) under its umbrella.

Hashdex Bitcoin Futures ETF DEFI was established in September 2022, offering investors a pathway to cryptocurrency through Bitcoin futures contracts, with current net assets totaling $2.14 million.

At the end of September, Hashdex submitted a proposed rule change to the U.S. Securities and Exchange Commission (SEC) for the Hashdex Bitcoin ETF DEFI. The fund aims to achieve its investment objective by investing in Bitcoin futures contracts and physical Bitcoins within the limits allowed for investments in spot Bitcoin. In other words, DEFI aims to be a strategic fund that simultaneously holds spot and futures Bitcoin. Under this premise, the fund will also be renamed Hashdex Bitcoin ETF.

How to Provide CME Market-Regulated Bitcoin Spot Trading

To address concerns raised by the SEC regarding Bitcoin being "potentially manipulated on unregulated exchanges," Hashdex proposed using the Chicago Mercantile Exchange (CME) for over-the-counter trading through Exchange for Physical (EFP) to resolve this issue.

The so-called EFP is a type of "off-exchange" trade conducted outside the centralized market of the exchange. EFP trades are privately negotiated between the two parties, and must be reported to the exchange after completion, most commonly involving the conversion between futures and spot trades. As both parties involved in the trade must be CME members, all trades are monitored by the CME.

Hashdex emphasizes that the Bitcoin futures contracts held by the fund and the physical Bitcoins traded through EFP will all be traded on the CME market. This allows the exchange to help identify and prevent fraudulent or manipulative activities related to these assets based on its members' shared information capabilities.

SEC Review Due by November 17

According to data compiled based on Bloomberg Terminal data, Hashdex Bitcoin ETF DEFI and Franklin Bitcoin ETF are recent submissions for Bitcoin spot ETFs. The SEC is expected to make a decision on their review by November 17, earlier than other Bitcoin spot ETFs such as those from BlackRock and Ark Invest, which are mostly scheduled for mid-January next year. Whether the outcomes will be as optimistic as Bloomberg's ETF analysts anticipate, only time will tell.