New ETF Invests in Grayscale Bitcoin Trust

As noted in the SEC's recent warning to mutual funds that own Bitcoin futures, "the SEC has not prohibited the closed-end funds invested in Bitcoin (like Grayscale), and this ETF will simply invest in that permissible instrument," said Morgan, a former SEC trial attorney. "Clever."

The May 11 statement issued by the SEC's Division of Investment Management was "a warning," Morgan said. "A warning to investors about the possible risks, but also a warning to mutual fund advisors that [the SEC exam division] will be conducting very, very thorough examinations of funds that make such investments."

ETF market prices, Morgan explained, "can deviate from the [net asset value] NAV of the ETF's portfolio. That issue should not arise in the mutual fund context because mutual fund transactions are 'forward priced' — all orders placed during the day execute at that day's NAV once it's calculated."

In other words, Morgan continued, "I can buy an ETF share directly in the market today at the market price, the underlying crypto asset's value could fluctuate wildly between the time of my purchase and the end of the day when the ETF's NAV is calculated. By contrast, if I put in purchase order for some mutual fund shares, I won't know specifically what I own until the mutual calculates its NAV at the end of the day and executes my order."

He added: "So that might explain why the SEC has not permitted a Bitcoin ETF but also hasn't shut down mutual fund investments in Bitcoin futures."