A Look at the SEC’s Historical Bitcoin ETF Proposal Timeline and What 2019 Can Offer
Bitcoin Exchange-Traded Funds (ETFs) have not fared well when it comes to their review by the United States Securities and Exchange Commission (SEC). If the review process is any indication of where we are heading, then, unfortunately, the outcome seems like it will lead to disappointment. Here is a brief overview of the SEC’s review – or lack thereof.
The First Submissions
Bats BZX Exchange filed the first proposal for a rule change with the SEC in June 2016. The proposal requested that the exchange is permitted to list and trade shares of Winklevoss Bitcoin Trust. The proposed rule change, which would have allowed for more exposure to bitcoin for the average everyday trader, was rejected. According to the SEC’s statement, it was concerned about fraud and manipulation, stating
“Based on the record before it, the Commission believes that the significant markets for bitcoin are unregulated. Therefore, as the Exchange has not entered into, and would currently be unable to enter into, the type of surveillance-sharing agreement that has been in place with respect to all previously approved commodity-trust ETPs agreements that help address concerns about the potential for fraudulent or manipulative acts and practices in this market — the Commission does not find the proposed rule change to be consistent with the Exchange Act.”
Another proposal was also pending at the time, one submitted by NYSE Arca, which was looking to list SolidX Bitcoin Trust ETF. The commission rejected this proposal as well, largely taking the same position that it had with Bats BZX Exchange’s proposal.
In January 2017, despite the rejections, another exchange filed an ETF with the SEC. Barry Silbert’s Grayscale Investments and by March 22 of that year, three negative comments had been filed in the interim. Rather than wait for an answer, which would have likely been a rejection based on the SEC’s history of rejecting ETFs, it withdrew its application.
On the point of comments to the SEC on the matter of ETFs, Mark T. Williams, a finance professor at Boston University, filed one as well. The comment – which came in the form of a seven-page letter, discussed why a Bitcoin ETF was not proper, and it specifically pointed to Grayscale Investments. The letter noted issues such as irregular trade execution, poor price discovery, global web of unregulated bucket shop exchanges, high bankruptcy risk, and more.
The bright spot is that there have been some positive comments as well. One came from James J. angel, an associate professor of finance at Georgetown University. He argued
“Moving bitcoin trading activity to regulated US exchanges will improve price discovery and reduce the potential for manipulation and money laundering,”
Progression In 2018 And 2019
The Winklevoss Bitcoin Trust filed another proposal, which was rejected again in 2018. The SEC cited the same issues, that it was concerned about fraud and manipulation. The same year, nine other applications were submitted by other exchanges, and they likewise, were rejected.
At this point, 2019 is underway and the SEC has not officially shown that it is willing to change its position. Of course, there are commissioners with the SEC that have made their own statements. For example, Robert J. Jackson Jr. stated,
“Eventually, do I think someone will satisfy the standards we’ve laid out there? I hope so, yes, and I think so.”
This comment, although it may be seen as a positive one, merely suggests that all the filings have failed to comply with the SEC’s standards. If it is just a matter of meeting standards and everyone has failed, then maybe it is time to reexamine the standards and to determine how they can be met.