The Role of Communications in Advancing the Adoption of Bitcoin ETFs

The continued denial of these applications highlights many key audiences with skepticism of the crypto industry. The disconnect stems from a lack of education, too much financial risk, and a lack of regulatory clarity. Consequently, SEC Chairman Gary Gensler of referred to crypto as “the Wild West.”[iii]

While the approval of Bitcoin ETFs is part of a larger push toward crypto and decentralized processes, the path forward is not guaranteed and requires tailored communications to target audiences. The fund’s complex approval process requires a holistic communications plan that’s inclusive of diverse audiences – investors, policymakers, media, business leaders, economists, and others – who all play a critical role in the future adoption of more Bitcoin ETFs.

What is a Bitcoin ETF?

One of the significant challenges facing Bitcoin ETFs is the general confusion over their structure and the difference between futures and spot Bitcoin ETFs. Currently, U.S. investors cannot buy physical Bitcoin with Bitcoin ETFs – only futures contracts. In other words, the ETF allows investors to buy or sell the asset at a future date at a set price. Regardless of the asset’s actual price that day, you must buy or sell the asset at the stipulated price on the specified date. While the contracts will attempt to track the spot price of Bitcoin, the ETF will not necessarily correlate with the actual price.[iv]

The proposed Bitcoin spot ETFs would track the performance of Bitcoin, allowing institutional investors to invest in Bitcoin without physically purchasing any crypto supply. No spot Bitcoin ETF has been approved yet. Despite several rejected Bitcoin ETF applications, companies continue to submit proposals, highlighting several benefits including:

1. Diversification:

• Investing in the Bitcoin ETF provides investors with the opportunity to mitigate risk while gaining exposure to more than just one individual asset.

2. Cost Reduction:

• Once approved by the SEC, the Bitcoin ETF would be trading on traditional market exchanges and regulated by Financial Industry Regulatory Authority (FINRA) and the SEC which in turn makes investors eligible for tax breaks.

3. Convenience:

• The Bitcoin ETF provides leverage to the price of Bitcoin for investors without them having to commit to understanding the ins and outs of how Bitcoin work. This framework is tailored towards investor for the sake of ease of use.[v]

Implications for Investors

Although the ETF structure has opened the door for investors who are skeptical about buying Bitcoin directly from exchanges and setting up digital wallets, investment advisors are still concerned about investors not knowing what they’re buying.[vi] Therefore, it is crucial for companies to communicate clearly and effectively with potential investors about the difference between futures and spot ETFs, as it determines their credibility and commitment to transparency in a relatively new investment market.

Moreover, it will be essential for investment firms to collaborate with analysts and investment advisors. Companies involved in Bitcoin ETFs must develop messaging that conveys to investment advisors who counsel clients that investing in futures contracts does not violate their fiduciary duty if it aligns with the client’s financial and risk preferences.

While firms await the SEC’s decision to approve more futures ETFs and possibly a spot bitcoin ETF, firms will have to develop a communications strategy that 1) promotes bitcoin ETF futures as the middle ground between crypto and traditional investing; 2) defines the benefits, risks and costs associated with futures contracts; 3) informs investors periodically of the ETF’s performance; and, 4) engages in conversations with investors to alleviate concerns of market manipulation and volatility.

Policymaker Considerations

Despite the launch of several Bitcoin futures ETFs, we still have a long way to go before the approval of more futures-based ETFs and, eventually, a Bitcoin spot ETF. Expedited action from SEC Chairman Gensler appears unlikely because it encompasses one of his priority themes: investor protection.[vii] Addressing investor protection concerns needs to be at the core of firms’ messaging.

Crypto firms have several opportunities to engage and educate players across the regulatory landscape about Bitcoin ETFs. It is important to take advantage of these opportunities because policymakers are open to engagement through meetings[viii], staff briefings, public comment periods[ix], and regulatory events. Firms can utilize these opportunities to educate the wide range of stakeholders in an understandable and digestible way through documents and events such as one-pagers, policy papers, third-party speaking events, and op-eds. As crypto firms position themselves to have an influential voice in Washington D.C., Bitcoin ETFs play a role in telling their stories.

FTI’s Corporate Reputation Positioning Expertise

While crypto firms make their case to release Bitcoin ETFs, they must proactively articulate their narrative in a way that clearly outlines the mission and goals of their business and ensures they are reaching target audiences through a coordinated communications strategy. Education is one way to counter the complexity of the crypto space. For example, top crypto firms are now sharing free investment-grade research, hosting roundtable discussions, and providing introductory courses about the basics of cryptocurrency.[x]

As more people become familiar with and understand the framework, there will be more demand for crypto products, which will create regulatory pressure to allow physical coins and tokens and expand spot ETFs. When these offerings become available to the public, it will be pertinent for crypto firms to be in a position that allows them to adapt to the market at the exact moment.[xi] To ensure their key messages resonate, crypto firms need to start with an audience-first approach to understand who they should target and how they can reach them through the proper communications channels.

Moving Towards Approval

Given uncertainties around today’s regulatory environment and markets, crypto and DeFi have a unique opportunity to shape the narrative and invite all relevant stakeholder groups to participate in the making of a new digital world. Companies looking to launch and seek approval of a Bitcoin ETF, both spot and futures, are sitting at a watershed moment for the future of the product in the U.S. FTI Consulting is poised to help companies looking at offering a Bitcoin ETF to incorporate these tactics into their plans:

• Educate and inform others about the benefits of ETFs. Properly communicate to regulators such as the SEC that Bitcoin ETFs allow institutional- not retail- customers a new way to gain exposure to the crypto market without buying the physical asset. This includes general education on crypto and the unique benefits and differences of Bitcoin ETFs compared to the broader market.
• Craft a media strategy that engages all audiences. Companies can position themselves as industry leaders, innovators, and market experts by developing thoughtful key messages and syndicating them across relevant media, digital and social channels, and outlets.
• Implement a comprehensive communications plan: The complexity of Bitcoin ETFs and the misinformation and uncertain nature of the crypto market heightens the need for companies to ensure all stakeholders are receiving the same messaging effectively and compellingly.

FTI’s Strategic Communications segment is well-positioned to assist crypto companies with building comprehensive communications campaigns that protect their license to operate and promote their reputation among target audiences.

[i] Should I buy a bitcoin ETF? Here’s what some pros say you should consider. https://www.marketwatch.com/story/should-i-buy-a-bitcoin-etf-heres-what-some-pros-say-you-should-consider-11634839325.

[ii] SEC flooded with comment letters about Bitcoin ETFs. https://www.investmentnews.com/sec-flooded-comment-letters-bitcoin-etfs-217634.

[iii] Gensler, Gary. (August 3, 2021). Remarks Before the Aspen Security Forum. https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03.

[iv] New Bitcoin ETF Grows at Record Speed. Here’s What Investors Should Know. https://time.com/nextadvisor/investing/cryptocurrency/bitcoin-etf-approved/.

[v] Corporate Finance Institute. (January 21, 2022). Bitcoin ETFs. https://corporatefinanceinstitute.com/resources/knowledge/other/bitcoin-etfs/ .

[vi] A Bitcoin ETF Will Finally Start Trading Tuesday. Just Remember — It’s Not Bitcoin. https://www.barrons.com/articles/bitcoin-etf-risks-51634490482?tesla=y.

[vii] U.S. Securities and Exchange Commission, “Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions,” p. 6, Fall 2021, https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPub=true&agencyCode=&showStage=active&agencyCd=3235&csrf_token=7CE97CC2D49C9B6B70868F7B2752E582C86F1945A4A46F34426C18AF1ABE101E611318F64B67159C3A36E7556BD0FB872C8F.

[viii] The Hill, “Making progress on decentralized regulation — It’s time to talk about crypto together” p. 1-4, May 2022, https://thehill.com/blogs/congress-blog/3503277-making-progress-on-decentralized-regulation-its-time-to-talk-about-crypto-together/ .

[ix] Board of Governors of the Federal Reserve System, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” p. 2, January 2022, https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf.

[x] The Block, “Wall Street banks are expanding crypto sell-side research”, p. 1-3, January 2022, https://www.theblockcrypto.com/post/132366/wall-street-banks-are-expanding-crypto-sell-side-research.

[xi] U.S. Securities and Exchange Commission, “SEC Proposes Amendments to Include Significant Treasury Markets Platforms Within Regulation ATS,” p. 1-2, January 2022, https://www.sec.gov/news/press-release/2022-10.