Again within the halcyon days of August 2024, FT Alphaville argued that the launch of a leveraged single-stock ETF monitoring MicroStrategy’s inventory was the ETF trade’s shark-jumping second.
Oh how sweetly/stupidly naive we had been on the time.
Underneath new SEC chair Paul Atkins, the principle US monetary watchdog will “embrace and champion” innovation, an unsubtle sign to the crypto world that it might probably run wild as soon as extra.
The inevitable result’s monetary abominations like this:
An organization referred to as “Canary Capital” — yeah, us neither — has turn into the primary asset supervisor to file with the US Securities and Trade Fee to launch an ETF that will comprise non-fungible tokens.
In line with the prospectus, the mooted fund would “make investments” 80-95 per cent of its property in Pengu, which, apparently, is the “official token of the Pudgy Penguin mission”. An extra 5-15 per cent shall be held in Pudgy Penguin NFTs, alongside a sprinkling of solana and ether.
It’s maybe an indication of the instances that these latter cryptocurrencies — solely certainly one of which (ether) has been accepted by the SEC as a holding for ETFs — are seen as nearly grown-up property compared to its proposed spheniscidae-themed holdings.
Its submitting admits that:
PENGU is a brand new SPL token that exists on the Solana Community. Relative to different digital property resembling bitcoin, ETH and SOL, PENGU has only a few recognized use instances aside from a collector’s merchandise . . .
There isn’t any assurance that utilization of the PENGU will proceed to develop. A contraction within the use or adoption of PENGU might end in elevated volatility or a discount within the worth of PENGU, which might adversely impression the worth of the Shares. Gross sales of PENGU which have been newly launched from escrow might trigger the value of PENGU to say no, which might negatively have an effect on an funding within the Shares. PENGU markets have a restricted historical past, PENGU buying and selling costs have exhibited excessive ranges of volatility, and in some instances such volatility has been sudden and excessive. Due to such volatility, Shareholders might lose all or considerably all of their funding within the Belief.
Spot markets on which PENGU trades are comparatively new and largely unregulated or will not be complying with current rules and, due to this fact, could also be extra uncovered to fraud and safety breaches than established, regulated exchanges for different monetary property or devices, which might have a unfavorable impression on the efficiency of the Belief. Disruptions at PENGU spot markets, futures markets and within the over-the-counter (“OTC”) markets might adversely have an effect on the provision of PENGU and due to this fact their capability to create and redeem Shares of the Belief. The loss or destruction of sure “non-public keys,” together with by the Custodian, might forestall the Belief from accessing its PENGU.
Pudgy Penguins is related to the chance of an funding in NFTs. Investing in NFTs entails vital danger because of the extremely risky and speculative nature of the NFT market. The worth of NFTs can fluctuate dramatically over quick durations, influenced by elements resembling market demand, developments, movie star endorsements, and broader financial circumstances. In contrast to conventional property, NFTs lack historic efficiency knowledge, making it difficult to foretell future worth. Moreover, the NFT market is comparatively new and unregulated, which may result in elevated susceptibility to market manipulation, fraud, and different illicit actions. Traders ought to be conscious that the worth of their NFT investments might lower considerably or turn into illiquid, leading to potential monetary loss.
The tokens are at the least going cheep, and are presently buying and selling at $0.0103, in line with Coingecko, a dive of 63 per cent from the extent they hatched at in December 2024.
And that’s earlier than we get to the NFTs. The eagle-eyed amongst you’ll have noticed that the entire level of NFTs is that they’re non-fungible. So far ETFs, whether or not they maintain shares, bonds, by-product contracts and even cryptocurrencies, have at all times held fungible property — shares in Apple, tranches of a given bond and even bitcoin are totally interchangeable.
Bringing in NFTs adjustments this equation. Every of the 8,888 Pudgy Penguin NFTs has a mix of various traits, together with color, facial features, equipment and backgrounds. Certainly, it’s this very uniqueness that offers NFTs “worth” — at the least to those that don’t consider this worth is roughly zero.
Fairly how this could work in a fund construction famed for day by day liquidity, continually up to date internet asset worth, and usually minuscule premiums and reductions to NAV because of the arbitrage mannequin facilitated by authorised contributors, is considerably unclear.
To be truthful, holders of Pudgy Penguin NFTs have so far had a worthwhile, if wild experience, at the least if that they had hopped on board at inception.
The NFTs had been minted at 0.03 ether in 2021. The ground worth — the bottom worth at which any of the gathering trades — hit 21.68 ether in February 2024, a to not be sniffed at rise of 72,167 per cent. That took the market cap to inside a feather of $500mn. The ground worth has since dived to round 9.4 ether, or $23,300.
A push to increase the attain of ETFs into the realm of NFTs was maybe inevitable, even below a much less supine SEC.
Issuers have filed dozens of functions for ETFs that will maintain cryptocurrencies aside from bitcoin and ether, resembling solana, XRP and cardano. Basket merchandise holding a variety of currencies are additionally within the offing.
Upping the ante additional, in January, three asset managers filed to launch ETFs that will maintain memecoins — missing even the use instances often ascribed to extra “conventional” cryptocurrencies — linked to Donald Trump and Elon Musk.
Nonetheless, even at the moment it’s unclear whether or not the Pengu ETF will ever truly occur. Canary Capital might have managed to make a submitting, however that’s a low hurdle to clear. Many advocates for the ETF model will hope it has as a lot probability of getting off the bottom as everybody’s favorite Antarctic avians.
Additional studying:
— SEC commissioner Crenshaw rips the company’s ‘regulatory Jenga’ (FTAV)
— Bonfire of the NFTs (FTAV)
