Crypto Lawyer Predicts How the SEC Will Settle VanEck/SolidX Bitcoin Trust ETF

For months, the SEC has debated whether to approve or deny one of the most promising bitcoin ETFs in the industry. With a final deadline set for February 27, one crypto lawyer has made a bold prediction about how the SEC will proceed.

The VanEck/SolidX Bitcoin Trust ETF was first submitted for SEC approval earlier this summer. The exchange traded fund would hold real, physical bitcoin and cater to institutional investors. Some believe it has the best chance of being the world’s first bitcoin ETF.

While the SEC has denied every other bitcoin ETF that has come across its desk, some believe this ETF is different. First, the SEC hasn’t flat-out denied this ETF like it has denied other ETFs. Instead, the SEC has delayed the decision on the VanEck/SolidX Bitcoin Trust ETF twice to date.

With that in mind, government enforcement defense and securities litigation expert Jake Chervinsky (@jchervinsky) took to Twitter to explain where he feels the ETF is going next. Over a thread of 20 tweets, Chervinsky explains the SEC’s thought process and the likelihood of this ETF being the first bitcoin ETF approved by the regulator.

“I Think the ETF is In Trouble”

First, Chervinsky starts his thread with some bad news for the crypto community:

“I’ll say this upfront: I think the ETF is in trouble.”

Chervinsky adds that he thinks VanEck and SolidX “have done great work this year”, but he feels that the reasons for denying the ETF are out of their control. VanEck and SolidX have done everything in their power to create an effective investment product, but the same problems that have led the SEC to deny previous ETF proposals could lead them to deny this latest one:

“When we last discussed the ETF on September 20, the SEC had just stated its “grounds for disapproval under consideration.” The goal of that step is for the SEC to explain all the reasons why it might deny the ETF so the sponsors & the public can respond to them all.”

The most important concern from the SEC was regarding market manipulation. The SEC wanted to ensure that Cboe BZX, the exchange where the ETF would be listed, had a “surveillance-sharing agreement with a regulated market of significant size.” In other words, does the Cboe BZX exchange have a connection to an effective price discovery market.

“I call this the most important question because it's the main issue that killed the Winklevoss ETF on appeal in July 2018 (after initial denial in March 2017). And the Winklevoss appeal denial is the most important SEC decision because it came straight from the Commissioners.”

Exchanges Don’t Want to Provide Surveillance Info To the SEC

The problem isn’t finding an exchange to provide surveillance to Cboe BZX. The problem is with finding an exchange willing to share surveillance info with the SEC:

“The issue for ETF sponsors is that most crypto exchanges don't really want the SEC looking through their books. Some are blocking US IP addresses to stay outside SEC jurisdiction. It's hard to imagine those same exchanges agreeing to surveil their clients for the SEC.”

Some of the world’s largest cryptocurrency exchanges actively block American IP addresses because of fears of regulatory backlash from the SEC. These exchanges provide some of the most effective price discovery in the bitcoin market. Unfortunately, they’re also unlikely to share data with the SEC.

“If the Deadline Were Today, I’d Give the ETF a 10% Chance of Approval”

Ultimately, Chervinsky’s 20 tweet thread boils down to one crucial point:

“If the deadline were today, I’d give the ETF a 10% chance of approval. My prediction is based largely on the manipulation issue. I think the chance of ETF approval will go up over time as market structure continues to develop & more surveillance-sharing agreements are entered. The question is: how high can it go before the February 27 deadline?”

Chervinsky’s tweets sum up one of the biggest issues preventing ETF approval: lack of effective price discovery mechanisms. Although these mechanisms will be built over time – say, by companies like Bakkt – it seems increasingly unlikely they will be in place before the February 27 deadline. For all of these reasons, Chervinsky feels it’s unlikely that the SEC is preparing to approve the VanEck/SolidX Bitcoin Trust ETF.

Ultimately, the final deadline for the VanEck/SolidX Bitcoin Trust ETF has been set for February 27, 2019. The SEC can delay the decision on the ETF no longer: it must make a decision on or before that date. Chervinsky doesn’t seem optimistic – although even he feels there’s a 1 in 10 chance the ETF gets approved.

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