On Wednesday the SEC rejected applications by three different institutions seeking to launch a total of nine ETFs tracking the price of Bitcoin. The announcement came a day ahead of the deadline for a decision on the two ETFs proposed by Proshares. The other proposed ETFs included one from GraniteShares and five from Direxion.
Whilst the door has been closed for these particular ETFs, the SEC is still to announce its decision on an ETF application from a CBOE/Van Dyk/Solid-X consortium and another from Bitwise.
Most market analysts were not very hopeful about the applications that have been denied, though some believed that the Proshares application would be treated differently. Proshares were intending to launch two funds, with both long and short exposure ETFs, that would be invested in Bitcoin futures rather than the cryptocurrency itself.
Since the CME and CBOE futures contracts are themselves traded on regulated exchanges, some believed it should only be a formality to approve the ETFs.
Open to Fraudulent and Manipulative Acts and Practices
The SEC committee gave the same reason it gave in July when an application from Gemini was rejected. The agency’s main concern is that the market for Bitcoin is open to fraud and price manipulation. In the case of the Proshares application, the SEC committee added that “the exchange has offered no record evidence to demonstrate that bitcoin futures markets are markets of significant size.”
It’s worth noting that the SEC is claiming that its issue is with the market structure for cryptocurrencies rather than Bitcoin itself. The implication is that it is the exchanges that will need to satisfy the regulator that they are able to prevent fraud and manipulation.
The deadline for a decision on a similar application by Bitwise is due by 7th September and a decision on the CBOE linked ETF is due by the end of September.
The CBOE ETF has been pitched as an institutional product with a share price of $200,000, and analysts believe that if an ETF is to be approved, this will be the one. However, the SEC does have the option of delaying that decision until early 2019 – so investors may have to wait another six months.