The United States Securities and Exchange Commission has not been friendly toward ETF applications – it deferred Direxion’s application and rejected applications by Cameron and Tyler. These actions have led many to wonder what will happen to VanEck’s CBOE Solid X application.
Currently, there are many BTC ETF applications filed – some are physically baked, while others are crypto derivative backed. VanEck’s filing falls into the latter category and it shares space with filings by Rex Shares, Pro Shares, and First Trust, which each have withdrawn their applications. On the coin-backed side, Distributed Capital and Grayscale have pulled out as well.
CBOE-VanEck-SolidX Bitcoin ETF is facing a great deal of attention, as a result. The application may be in a positive position for approval, even in light of the rejections and withdrawals.
While the application filing is still pending at the SEC, VanEck is making a proactive effort to increase the chance of approval by filing a letter with the commission. The letter, which is specifically addressed to Dalia Blass, the SEC’s director of Investment Management, provides solutions for five points of order identified by the SEC in its most recent communication with the industry. Here are VanEck’s answers to the communication:
Valuation: the price from CBOE and CME are sufficient to adequately determine the ETF’s net asset value.
Liquidity: the bitcoin market is liquid and it has an average trading spread of five basic points. The bitcoin futures market has been efficient against the physical bitcoin market. The total volume of CBOE and CME are reaching $200 million.
Custody: ETF will not invest in settled bitcoin contracts. However, it could engage in market players to satisfy custody requirements.
Arbitrage: bitcoin markets are not more volatile than other financial instruments, such as stocks or equities. In VanEck’s own words,
“We believe that neither the volatility nor currency volume in the bitcoin futures market will inhibit the creation and redemption process by authorized participants and that these creations and redemptions will keep the proposed ETF’s market price in line with its NAV.”
Potential Manipulation and Other Risks: the risk of manipulation is mitigated by its nature as US exchange traded product.
Further, the price of bitcoin floats around $8,000, even as Winnklevoss’s ETF was rejected. However, the price may experience more volatility if more negative news is issued. On the other hand, approval may lead to a bull run. At this point, the best thing to do is to wait and see whether CBOE-SolidX’s will be accepted by the SEC or whether it will be added to the pile of rejections and deferments.