Posted on 02-28-2020.
As the recent news has it, the SEC rejected the last application for a Bitcoin exchange-traded fund it had to review. There are no more applications pending, and it seems the Commission isn’t going to make Bitcoin ETFs happen, at least soon. In this article, forklog.media rounds up the SEC’s response to applications, as well as the difference Bitcoin ETFs would make for the crypto-industry.
“As discussed further below, the Commission is disapproving this proposed rule change because it does not find the proposal to be consistent with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest, ” the statement reads.The document continues with two primary conditions for an ETF to be allowed:
“First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated.”In response, BZX filed a petition for the Commission review. The petition was granted, the SEC considered the proposal once again, then rejected it once again and provided brief 92-page disapproval. Again, BZX failed to meet the requirements set forth by Subsection 5 of Section 6(b) of the Exchange Act, which requires exchanges to have rules “designed to prevent fraudulent and manipulative acts and practices.” The SEC pointed out that with its proposal BZX had to:
“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.”However, the SEC Commissioner Hester Peirce didn’t agree with the rejection of BZX’s proposal.
"The Commission erroneously reads the requirements of Section 6(b)(5). The disapproval order focuses on the characteristics of the spot market for Bitcoin, rather than on the ability of BZX—pursuant to its own rules—to surveil trading of and to deter manipulation in the ETP shares listed and traded on BZX," she wrote.The Commissioner also added that Section 6(b)(5) “says nothing about looking at underlying markets, as the Commission often has done in its orders.” Nevertheless, shortly after BZX got its first rejection, the SEC turned down a proposal by NYSE Arca to list SolidX Bitcoin Trust ETF. The reasoning behind the decision was overwhelmingly similar. In 2019, the SEC Chairman Jay Clayton told FOX Business that he is not against the asset itself, but there are concerns about manipulation and investor protection.
“What I’m concerned about at the moment is if it can be reasonably demonstrated that the underlying trading is generally not manipulated, it’s happening on reliable venues with good rules and that custody is something we can feel comfortable about.”Despite the rejections, applications for Bitcoin ETFs kept on coming, but the SEC has been turning down all bids up until now, the end of February 2020, and there is no more to review. The main reason behind all of the rejections was mostly the same: failure to demonstrate that the proposed rules are designed to prevent fraudulent and manipulative acts and practices.
“I for one am not lobbying for an ETF or for Wall Street-managed money in general. It might cause more problems than it’s worth.”Bitcoin evangelist Andreas Antonopoulos called it “a terrible idea” and mentioned that ETFs may lead to the centralization of the cryptocurrency market and make it susceptible to manipulation by institutional investors. All in all, the actual direct effect of ETFs on the crypto-industry is yet to be observed. Until then, it seems there are a lot of things to be done if we are to ever see Bitcoin ETFs on regulated public markets. On a positive note, the SEC Commissioner Robert Jackson Jr. said in February that eventually someone will hopefully “satisfy the standards” laid out by the Commission. Follow us on Twitter and Facebook and join our Telegram channel to know what’s up with crypto and why it’s important.