Market Overview

SEC Balks At Another Bitcoin ETF

SEC Balks At Another Bitcoin ETF

The Securities and Exchange Commission dealt another blow to investors hoping for a bitcoin exchange traded fund and issuers looking to bring such funds to market on Thursday when the commission denied a bitcoin ETF proposal from Bitwise Asset Management.

What Happened

In rebuffing the Bitwise Bitcoin ETF Trust, the SEC, as it previously has with competing bitcoin ETF bids, wasn't rejecting the fund as it was rejecting a proposed securities rule change that would make bitcoin funds possible.

“This order disapproves the proposed rule change, as modified by Amendment No. 1. Although the Commission is disapproving this proposed rule change, the Commission 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,” said the commission.

Why It's Important

Another theme the SEC has been consistent with when it comes to bitcoin ETFs has been concerns regarding issuers' efforts “designed to prevent fraudulent and manipulative acts and practices.”

Said another way, the SEC believes bitcoin prices can be manipulated and the commission is foisting some of the burden for reducing that manipulation onto ETF issuers. The commission's concerns on this front date back to the proposed Winklevoss Bitcoin ETF Trust, which was the first bitcoin ETF proposed.

“When considering whether NYSE Arca’s proposal to list the Shares is designed to prevent fraudulent and manipulative acts and practices, the Commission has applied the same analysis used in its orders considering previous proposals to list a bitcoin-based commodity trust—the 'Winklevoss Order'—and bitcoin-based trust issued receipts,” said the commission.

What's Next

The SEC outlines some of the protocols for bitcoin ETF issuers looking to allay the commission's fraud concerns and the burdens, including surveillance-sharing agreements, are considerable.

“The Commission found in the Winklevoss Order and in orders considering bitcoin-based trust issued receipts,that, if the listing exchange for an ETP fails to establish that the underlying commodity market is inherently resistant to fraud and manipulation, or that other means to prevent fraudulent and manipulative acts and practices will be sufficient,the listing exchange must enter into a surveillance-sharing agreement with a regulated market of significant size relating to the underlying or reference assets since“[s]uch agreements provide a necessary deterrent to manipulation because they facilitate the availability of information needed to fully investigate a manipulation if it were to occur,” according to the SEC.

The Bitwise Bitcoin ETF Trust would store the digital currency with a custodian bank with prices being derived from multiple crypto exchanges.

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