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 industry’s shark-jumping moment.
Oh how sweetly/stupidly naive we had been on the time.
Beneath new SEC chair Paul Atkins, the principle US monetary watchdog will “embrace and champion” innovation, an unsubtle sign to the crypto world that it could run wild as soon as extra.
The inevitable result’s monetary abominations like this:
An organization known as “Canary Capital” — yeah, us neither — has change into the primary asset supervisor to file with the US Securities and Change Fee to launch an ETF that will comprise non-fungible tokens.
In response to the prospectus, the mooted fund would “make investments” 80-95 per cent of its belongings in Pengu, which, apparently, is the “official token of the Pudgy Penguin venture”. An extra 5-15 per cent can be held in Pudgy Penguin NFTs, alongside a sprinkling of solana and ether.
It’s maybe an indication of the occasions that these latter cryptocurrencies — solely one among which (ether) has been accredited by the SEC as a holding for ETFs — are seen as nearly grown-up belongings compared to its proposed spheniscidae-themed holdings.
Its filing admits that:
PENGU is a brand new SPL token that exists on the Solana Community. Relative to different digital belongings akin to bitcoin, ETH and SOL, PENGU has only a few recognized use circumstances other than 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 could lead to elevated volatility or a discount within the value of PENGU, which may adversely affect the worth of the Shares. Gross sales of PENGU which have been newly launched from escrow could trigger the value of PENGU to say no, which may 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 circumstances such volatility has been sudden and excessive. Due to such volatility, Shareholders may 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, subsequently, could also be extra uncovered to fraud and safety breaches than established, regulated exchanges for different monetary belongings or devices, which may have a damaging affect on the efficiency of the Belief. Disruptions at PENGU spot markets, futures markets and within the over-the-counter (“OTC”) markets may adversely have an effect on the supply of PENGU and subsequently their potential to create and redeem Shares of the Belief. The loss or destruction of sure “non-public keys,” together with by the Custodian, may stop the Belief from accessing its PENGU.
Pudgy Penguins is related to the danger of an funding in NFTs. Investing in NFTs includes vital danger because of the extremely risky and speculative nature of the NFT market. The worth of NFTs can fluctuate dramatically over brief intervals, influenced by components akin to market demand, traits, superstar endorsements, and broader financial circumstances. Not like conventional belongings, NFTs lack historic efficiency knowledge, making it difficult to foretell future worth. Moreover, the NFT market is comparatively new and unregulated, which might result in elevated susceptibility to market manipulation, fraud, and different illicit actions. Traders ought to be conscious that the worth of their NFT investments may lower considerably or change into illiquid, leading to potential monetary loss.
The tokens are a minimum of going cheep, and are at the moment buying and selling at $0.0103, in response to 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. To this point ETFs, whether or not they maintain shares, bonds, spinoff contracts and even cryptocurrencies, have all the time held fungible belongings — shares in Apple, tranches of a given bond and even bitcoin are absolutely interchangeable.
Bringing in NFTs modifications 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 provides NFTs “worth” — a minimum of to those that don’t consider this worth is roughly zero.
Fairly how this is able to work in a fund construction famed for day by day liquidity, continually up to date web asset worth, and usually minuscule premiums and reductions to NAV because of the arbitrage mannequin facilitated by authorised contributors, is considerably unclear.
To be honest, holders of Pudgy Penguin NFTs have to this point had a worthwhile, if wild trip, a minimum of if that they had hopped on board at inception.
The NFTs had been minted at 0.03 ether in 2021. The ground value — the bottom value 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 value 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 underneath a much less supine SEC.
Issuers have filed dozens of functions for ETFs that will maintain cryptocurrencies aside from bitcoin and ether, akin to solana, XRP and cardano. Basket merchandise holding a spread 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 circumstances normally ascribed to extra “conventional” cryptocurrencies — linked to Donald Trump and Elon Musk.
Nonetheless, even these days it’s unclear whether or not the Pengu ETF will ever truly occur. Canary Capital could 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 likelihood of getting off the bottom as everybody’s favorite Antarctic avians.
Additional studying:
— SEC commissioner Crenshaw rips the agency’s ‘regulatory Jenga’ (FTAV)
— Bonfire of the NFTs (FTAV)
