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Exchange-traded funds (ETFs) are a type of ETP. They are investment companies that are legally classified as open-end companies or unit investment trusts (UITs) and that are similar to mutual funds or closed-ends funds except for a few differences. They are pooled investments that offer a return similar to that of an index.[1] ETFs trade like an individual stock on major stock exchanges. The price of an ETF changes throughout the day just like a stock as it is bought and sold by investors. Unlike a mutual fund, ETFs do not have a NAV (Net Asset Value) that is calculated daily.[2]

The differences include that ETFs do not sell individual shares directly to investors and only issue shares in large blocks called creation units; that after purchasing a creation unit, an investor often splits it up and sells the individual shares on a secondary market; and that investors buy creation units not with cash, but with a basket of securities that generally mirrors the ETF's portfolio.

Currently, all ETFs seek to achieve the same return as a particular market index. Such an ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index.[3]

Riding the wave of investor enthusiasm for cryptocurrency infrastructure companies that was evident during the run-up to trading platform and wallet company Coinbase's public debut on Nasdaq on April 12, 2021, VanEck launched its Digital Transformation Fund on the same day. The ETF invests in companies like Coinbase, mining companies and payment gateways as well as hardware and software companies in the cryptocurrency sector.[4]

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In March 2017, the SEC rejected Cameron and Tyler Winklevoss' proposal to list a bitcoin ETF on Cboe's Bats BZX Exchange, which was originally proposed in 2013.[5][6][7] According to the SEC's statement, this was due in large part to the lack of regulation for bitcoin "to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest."[8]

In June 2018, the twins tried again, submitting a second, amended proposal to the SEC to trade bitcoin ETF shares through the Bats BZX exchange. Once again, the SEC rejected the proposal, citing lack of sufficient market surveillance and strong evidence for the proposal's claims that the bitcoin market is "strongly resistant to manipulation." Following the news, the price of bitcoin dropped by 3.6 percent.[9][10]

In August, the SEC rejected nine proposals for bitcoin ETFs from three companies: Direxion, GraniteShares, and Proshare.[11][12]

In May 2019, a company called Crescent Crypto Asset Management proposed a crypto-based ETF to the SEC sponsored by the United States Commodity Funds LLC (USCF), a commodity pool operator regulated by the CFTC.[13]

In July 2019, Jeff Dorman, chief investment officer at Arca, wrote in a blog post that the wild price swings of bitcoin that month had significantly diminished the likelihood of a bitcoin ETF being approved by regulators. “It’s almost a slam dunk now that an ETF won’t be approved any time soon, as an 81% 14-day levered rally, most of which occurred after U.S. trading hours, is not exactly the formula for successful SEC approval,” Dorman wrote.[14]

The cryptocurrency asset advisory and management firm Bitwise proposed a bitcoin ETF with NYSE Arca in January 2019. It was rejected by the SEC in October 2019.[15]

In its at least fourth attempt to list a bitcoin ETF, Cboe submitted a proposal to the SEC for trading shares in a VanEck Bitcoin Trust on March 1, 2021. Ostensibly, Cboe was optimistic that the SEC would view the bitcoin marketplace as operating better than when Cboe withdrew a proposed bitcoin ETF in January 2021. It was the first formal ETF proposal to the SEC after Chairman Jay Clayton stepped down from the agency in December 2020.[16]