A bitcoin futures exchange-traded fund (ETF) launched Tuesday morning – and saw strong demand from investors.This indicates some amount of market maturity and acceptance from regulators at the U.S. Securities and Exchange Commission (SEC), but also raises new questions about whether the format of the product is appropriate for investors and when a physical ETF may go live.You’re reading State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. Click here to sign up for future editions.The narrativeThe first bitcoin (futures) ETF in the U.S. began trading today, bookending an eight-year effort to launch a widely accessible, regulated bitcoin investment product.Why it mattersAdvocates of a bitcoin ETF have sought for literally years to launch such a product. They’re finally getting their wish, but not in full – the first product will be a bitcoin futures ETF.While this is certainly something, it likely won’t receive the same amount of attention or asset inflow that a physical bitcoin ETF would have, which raises the question of whether a physical bitcoin ETF is possible at all, and what might need to happen to see one launch.Breaking it downLongtime readers may recall that in February I asked if 2021 would be the year we finally see a bitcoin ETF in the U.S.At the time the conclusion I drew was, “Well, maybe.”There was genuinely an immense amount of hope and hype that the SEC would finally approve a bitcoin ETF, with proponents pointing to how the bitcoin market has changed since 2018, the new administration in Washington and the growth of a regulated futures market.And it turns out they were right! Sort of. A bitcoin futures ETF began trading this morning, a first for this type of product in the U.S. An actual physical bitcoin ETF still seems some time away, though. (On that front, Grayscale, which shares a parent company with CoinDesk, filed Tuesday to convert its Grayscale Bitcoin Trust into a spot bitcoin ETF.)What’s next?So the race to be the first to launch a bitcoin-related ETF has ended. All eyes are on whoever will be second, and whether ProShares will have a massive first-mover advantage or not.In theory, the next bitcoin futures ETF that could have launched would be Invesco, but the company announced it was pulling out late on Monday.This leaves Valkyrie and VanEck with bitcoin futures ETFs that could launch as soon as Oct. 25, giving ProShares nearly a week to ride the initial wave of enthusiasm.Valkyrie, at least, is moving to launch early. While the company hasn’t filed a post-effective amended prospectus as of Monday night, the firm did update its ticker, add pricing information and send initial listing information to the Bloomberg Terminal data team, all signs that it’s about ready to go.To launch, Valkyrie would need explicit permission from the SEC, but it could follow ProShares pretty quickly if it receives that permission.Gen, an analyst with Bloomberg Intelligence, said, “All this started when [SEC Chair Gary] Gensler outlined what he expected.”Wen physical ETFs?What isn’t clear is if/when a physically backed bitcoin ETF will launch.Gensler’s comments would suggest that this won’t happen anytime soon, certainly not in 2021. ETF experts on Twitter say sometime in the fourth quarter of 2022 may be a reasonable expectation. Seyffart agreed.“I view the futures ETF as a stepping stone,” he said. “I highly doubt the SEC will approve the product this year.”In terms of SEC getting comfortable w/ physical, yeah – that may take awhile. They’ll obv be watching futures-based products closely and go from there. If O/U is Q4 2022, I guess I’ll take the under…— Nate Geraci (@NateGeraci) October 18, 2021Companies filing for ETFs seem unconvinced.Bitwise Asset Management, which filed for a futures ETF in September, filed for a physical bitcoin ETF last week. CIO Matt Hougan said he believes the market itself is mature enough to support the product, citing data Bitwise compiled which ranks CME as the leading exchange for bitcoin price discovery.On Grayscale’s ETF filingThe timing remains curious to me. Will Gensler or the SEC staff really become more comfortable with a physical ETF within the legally mandated time frame for Bitwise or Grayscale’s filings?The answer may not depend on the SEC’s view of market maturity at all. While maturity and market surveillance were two key issues often cited by the SEC as it rejected bitcoin ETF applications in 2018 and 2019, Gensler’s more recent comments have largely focused on investor protections.He said he was comfortable with the investor protections enshrined in the Investment Company Act of 1940, which oversees futures ETFs, when compared to the Securities Act of 1933, which oversees the physical ETFs.The challenge for aspiring issuers may be drawing parallels between the futures ETFs and the physical ETFs and their respective investor protection clauses.And just a quick personal aside: Bitcoin ETF stories are how I landed in the regulatory beat, but it’s still genuinely a surprise that one launched this morning (even if it is a futures filing).Elsewhere:DeFi on the Ballot: Yearn Developer Matt West Is Running for CongressA Yearn.Finance developer and former MakerDAO lobbyist is running for the U.S. House of Representatives. Matt West told my colleague Andrew Thurman that he’s been considering this move for a while. What’s interesting to me is that while many other members of the crypto sphere have discussed running for office, many of those musings have been focused on how Congress treats crypto. West isn’t presenting himself as a single-issue candidate.Crypto 2022: Policy WeekCoinDesk is kicking off a full week of policy coverage to coincide with DC Fintech Week. Spearheaded by my colleague Ben Schiller, expect a number of deeply reported articles and opinion contributions discussing policy within and outside of the U.S.Crypto Learns to Play the DC Influence GameWhile you should read all of the Policy Week stories, I wanted to highlight this feature by Rob Garver on the lobbying efforts around crypto. As crypto gains a larger profile in Washington, I would expect to see a lot more effort from businesses in advocating for specific types of regulation.Outside CoinDesk:(The Washington Post) Crypto Twitter was one of the places you may have seen a ruckus about a proposed Treasury Dept./IRS move to collect certain information from bank accounts with more than $600 in them. The backlash, which came from lawmakers as well as industry players, seems to have spurred changes. The IRS will now report information from accounts that have gained more than $10,000 in non-wage income (i.e., your salary won’t count).(Reuters) Minorities may be more likely to buy into bitcoin, largely due to lack of access to the traditional banking sector, Reuters reported, citing a number of surveys.my new favorite case title pic.twitter.com/Fy4YqZ3P9o— CJ Ciaramella (@cjciaramella) October 18, 2021If you’ve got thoughts or questions on what I should discuss next week or any other feedback you’d like to share, feel free to email me at [email protected] or find me on Twitter @nikhileshde.You can also join the group conversation on Telegram.See ya’ll next week!