WisdomTree Grows Its Own Stablecoin For Better Crypto ETF Future

WisdomTree, a major asset manager controlling $63.8 billion in assets is set to introduce a regulated stablecoin with the hope of it leading to a crypto ETF. Now the company is waiting for the Securities and Exchange Commission’s (SEC) approval.

The WisdomTree project will be an exclusive combination of enterprise and regulatory experience in the stablecoin space — and, with the SEC’s approval, the first crypto exchange-traded fund regulated by the U.S.

The stablecoin will be backed by a bunch of assets, such as gold, fiat currencies or government debt. However, the company have not provided any details about the talks with the U.S. regulators.

First signs of an upcoming battle?

WisdomTree’s plans to develop the stablecoin may show the rising competition among large asset managers in the crypto industry. According to Financial News, WisdomTree commented on the matter, that it “is rushing to launch a regulated cryptocurrency in the U.S. to get ahead of industry giants BlackRock and Fidelity Investments in the digital currency space.”

”People are innovating”, said Macrae Sykes, portfolio manager and analyst at Gabelli and Company, adding that:

“Slowly, steadily we’re seeing more interest in Bitcoin among large asset managers like WisdomTree.”

In a Medium blog post from January 9, Fidelity stated that “while there are yet unanswered questions, its [Bitcoin’s] position is cemented, and its potential cannot be ignored.” Similar comments were made by State Street Corp. in December, when the company announced a digital assets project in collaboration with crypto exchange and custodian Gemini Trust. Jonathan Steinberg, founder and CEO of WisdomTree, said during the announcement:

“You want to be early. We came to ETFs 13 years after State Street. This gives us an opportunity to be ahead of the State Streets, Fidelitys, on regulated stablecoins.”

Will a crypto ETF follow?

An exchange-traded fund is an investment fund comprising various securities traded on stock exchanges through brokerage firms. WisdomTree is the seventh largest ETF sponsor in the U.S. according to Sykes, the company has been a leader in taking ETF products to the market. So, will a crypto ETF follow?

The company stated that the project is a natural evolution of its ETF business. In December 2019, WisdomTree introduced a physically backed Bitcoin exchange-traded product on the stock exchange in Switzerland.

A stablecoin is usually pegged to a relatively stable underlying asset, such as the U.S. dollar or gold, it is created and redeemed similarly to the ETF, which keeps values close to the underlying asset. This helps address the main problem of crypto: price volatility.

Stablecoins such as Gemini Dollar or Tether are valued in $1 per coin. Analysts Luciano Somoza and Tammaro Terracciano compared Facebook’s stablecoin Libra to a financial instrument:

“[Libra] feels like dejà vu for anyone familiar with ETFs. The creation-redemption mechanism is the same and ARs (authorized resellers), as defined by Libra, operate like authorized participants in the ETF market.”

WisdomTree acknowledged the similar structure of stablecoins and ETFs, but argued that users will be different. The company’s stablecoins will be used by cryptocurrency traders, while ETFs — by mainstream investors.

Troubles with the SEC

Obtaining the SEC approval for a stablecoin or crypto ETF is not an easy matter, though. The SEC blocks Libra, and crypto ETF applications were received in a rather unfriendly manner. More than a dozen ETF proposals were rejected. Cameron and Tyler Winklevoss, the founders of Gemini, have been rejected twice.

The past week saw a Bitcoin ETF request withdrawal by Bitwise Asset Management, the second major withdrawal following months after similar actions of VanEck.

There is still hope

However, recent troubles do not mean that it is impossible to approve the crypto ETF with the SEC.

SEC Commissioner Robert J. Jackson Jr. told Roll Call last year that “eventually, do I think someone will satisfy the standards that we’ve laid out there? I hope so, yes, and I think so.”

On Jan. 13, ETF Trends CEO Lydon told CNBC’s ETF Edge that there is a 60% probability that Bitcoin ETF will be introduced within the next year. Interestingly, another participant on the program, DataTrek Research’s Nick Colas, gauged the probability at only 10%.

Lydon stated that there is a positive sign: the SEC recently approved its first 1940 Investment Act-approved Bitcoin fund through the NYDIG Bitcoin Strategy Fund, a newly formed investment company that offers its shares for sale, despite having a limitation of only $25 million. Lydon also added that the growing interest in Bitcoin derivatives can effectively disperse the BTC liquidity fears which trouble the SEC.

“We’re still in the early stages,” Sykes said. “We’re a long way from a regulatory framework that will embrace a Bitcoin ETF.” Different scams and intense hype slow down regulatory approval. The SEC remains concerned about potential market manipulation.

Infrastructure investments

In the meantime, WisdomTree also supports crypto infrastructure projects. On January 7, it announced its investment in the startup Securrency Inc., a large-scale blockchain developer in the financial and regulatory sectors.

WisdomTree believes that a crypto ETF can be managed in a better way on a blockchain platform, where more investors can get access to it.

Generally, the crypto industry has struggled to obtain institutional and regulatory approval, therefore WisdomTree’s multi-front embrace of regulated cryptocurrency and blockchain infrastructure can be regarded as positive light.