SEC Straight Away Rejects Not One, Not Two, But Nine Bitcoin ETFs
On Wednesday, August 22, the U.S. Securities and Exchange Commission (SEC) has rejected nine Bitcoin ETFs from ProShares, Direxion and GraniteShares. The rejection comes a day ahead of the stipulated deadline of August 23 which was the last date for the securities agency to announce the ruling.
The nine rejected Bitcoin ETFs include two from ProShares and five from Direxion that were to be listed on the New York Stock Exchange (NYSE) ETF exchange NYSE Arca. The remaining two ETFs were from GraniteShares that were scheduled for listing on the CBOE exchange.
The securities watchdog has cited a common reason for all three rejections which notes: "...the Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission's Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange's rules be designed to prevent fraudulent and manipulative acts and practices.”
Unlike most of the Bitcoin ETFs seen recently which are directly linked to holding the Bitcoin tokens, these nine ETFs were linked to the price of the Bitcoin Futures contracts on the CBOE and the CME exchanges.
SEC also cited the CBOE letter which highlight the current market scenario with the Bitcoin futures and derivates market facing “extreme volatility and low liquidity”. The agency notes: "Additionally, the President and COO of CFE, recently acknowledged in a letter to the Commission staff that 'the current bitcoin futures trading volumes on Cboe Futures Exchange and CME may not currently be sufficient to support ETPs seeking 100 [percent] long or short exposure to bitcoin’.”
The agency also notes that this has given further room for potential market manipulation and fraud stating that “Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.’ That failure is critical because, as explained below, the Exchange has failed to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, and therefore surveillance-sharing with a regulated market of significant size related to bitcoin is necessary.”
The agency however noted that this rejection is not a ruling against the blockchain technology or cryptocurrencies in general. SEC wrote that it "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.”
The market sentiment for Bitcoin and ETF products has turned lukewarm especially after the SEC postponed its decision on the CBOE Bitcoin ETF to 30th of September, next month. CBOE President and Chief Operating Officer, Chris Concannon has also said that they want to get the first mover-advantage. But many experts from the crypto industry say that the SEC can further extend its decision on the CBOE Bitcoin ETF, and any possibility of them arriving before next year 2019, looks slim.