Capital markets News

Goldman Sachs’ blockchain, DeFi ETF has reasonable chance of success

ETF exchange traded fund

Yesterday Goldman Sachs filed plans to issue a blockchain-related exchange traded fund (ETF) in the United States, which stands a reasonable chance of getting the go-ahead. To date, the SEC has declined to approve numerous applications for Bitcoin ETFs with pending proposals from Van Eck, WisdomTree, Galaxy Digital, NYDIG and others.

However, Goldman is not aiming to provide direct exposure to Bitcoin. Instead, it’s proposing the ETF will invest at least 80% of its assets in U.S. and international securities, which give exposure to blockchain technology and the “digitalization of finance”. Hence Goldman’s use of the term ‘DeFi’ is rather a loose one. 

Many would consider decentralized finance (DeFi) more narrowly as protocols that sit on top of public blockchains offering lending, market making, insurance and other financial solutions. Given that none of these protocols are listed, Goldman’s description as “digitization of finance” is broad.

The SEC has already approved another ETF similar to Goldman’s, the Bitwise Crypto Industry Innovators ETF. That has a third of its funds invested in three firms. They are MicroStrategy, which holds huge amounts of Bitcoin on its balance sheet, cryptocurrency exchange Coinbase and Silvergate Capital, the bank that targets the crypto sector. The fund is pretty small, with just $49 million in assets.

Meanwhile, it is the U.S. that has held out against approving a direct cryptocurrency ETF. In Canada, Purpose was the first to launch a Bitcoin ETF. It has $878 million in assets compared to less than $100 million for the Canadian CI Galaxy Bitcoin ETF.

Several ETNs are available in Europe from Van Eck, WisdomTree, CoinShares, ETHetc and others, mainly focused on Bitcoin and Ethereum. For example, WisdomTree launched its Bitcoin ETN in 2019. The largest is ETHetc Bitcoin, listed on the Deutsche Boerse XETRA exchange and has a market capitalization of EUR 434m ($511m). The Bitcoin ETNs from Van Eck, WisdomTree, and CoinShares all have assets between EUR 100m ($118m) and EUR 200m ($236m).

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