The Securities and Exchange Commission (SEC) is constantly rejecting ETFs, the most recent being a long-awaited petition this Wednesday by ProShares. In addition to the ProShares ETF, the SEC rejected nine other bitcoin ETFs I the process, two from GraniteShares and five from Firexion.
This month, the US regulators delayed a decision in the VanEck and Solid X ETF issues. The big question that arise sis what is going on and what is causing the pushback. Here are some potential reasons:
First, bitcoin is not the problem. The SEC stated, in regard to Bitcoins functionality:
“[The agency] emphasizes that its disapproval does not rest on an evaluation of whether bitcoin, or blockchain technology more generally has utility or value as an innovation or an investment.”
Rather, market size may be a problem. The ETF proposals track bitcoin futures, not the bitcoin itself. The SEC has stated that the bitcoin market is quite small. “Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.’”
Second, manipulation and fraud could be an issue. The SEC is concerned that ETFs were rejected because they did not meet Exchange Act requirements, particularly:
“[the requirement] that a national securities exchange’s rule be designed to prevent fraudulent and manipulative acts and practices.”
Third, most of bitcoin’s volume is outside of the United States – approximately three quarters.
Finally, there is a wild swing on exchanges. The SEC did not directly address this problem, but it did suggest it is more likely to accept ETFs exchanges worked together. The price fluctuations lead to different prices and a lack of transparency.
Based on all of this information, the next question is whether there is any hope for the next bitcoin ETF. The SEC has stated,
“The Commission acknowledges that, compared to trading in unregulated bitcoin spot markets, trading a bitcoin-based ETF on a national securities exchange may provide some additional protection to investors, but the Commission must consider this potential benefit in the broader context of whether the proposal meets each of the applicable requirements of the exchange act.”
The rejection has unfortunately led to a decrease in bitcoin prices. The good news is that traders may be more realistic.