Key takeaways:
- The SEC rejected the highly anticipated VanEck’s Bitcoin spot ETF in a November 12 ruling
- The financial regulator has again cited the potential for “fraudulent and manipulative acts and practices,” as the reason for rejecting the latest BTC ETF application
Last week, the U.S. Securities and Exchange Commission (SEC) rejected VanEck’s Bitcoin spot exchange-traded fund (ETF) application. A couple of days after the latest BTC spot ETF was rejected, the future-based version of VanEck’s BTC ETF was launched. What’s behind the regulators’ unwillingness to allow trading of US-based crypto spot ETFs?
The SEC claims it wants to protect investors from the volatile nature of digital assets
The blockchain community has been eagerly awaiting the leading financial watchdog to approve the first physical Bitcoin ETF for nearly a decade. More than a dozen of spot fund applications have been rejected over the years, with the SEC citing the potential for fraudulent and manipulative practices as the main reason for their unwavering stance.
Last month, with the launch of BITO, the first US-traded Bitcoin futures ETF, it seemed that the tide was finally changing so the crypto community had high hopes for the November 12th ruling on VanEck’s ETF application.
Despite the fact that three BTC ETFs began trading in the past month, Proshares’ BITO on New York Stock Exchange (NYSE), Valkyrie’s BTF on NASDAQ, VanEck’s XBTF on Chicago Board Options Exchange (CBOE), the financial regulator didn’t change its stance regarding the cryptocurrency-based spot ETF.
The SEC summarized its decision in Friday’s notice: “The Commission concludes that BZX 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 Exchange Act Section 6(b)(5), in particular, the requirement 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.”
Jan van Eck, the CEO of VanEck took to Twitter to voice his disappointment with the Commission’s decision.
When talking with Bloomberg at a conference held on November 4, an American lawyer specializing in financial market regulation and the current member of the SEC Hester Pierce, explained that the reason BTC spot ETFs have been repeatedly rejected over the years “is that the Bitcoin markets don’t look like our regulated securities markets.”
Future markets are indeed strictly regulated which does dampen the potential volatility of cryptocurrency ETFs based on futures options. However, the exposure to the cryptocurrency market via such financial instruments is severely limited.
A non-futures ETF would be a game-changer for institutional-scale investors unwilling to use cryptocurrency exchanges or other crypto-based products to expand their exposure to Bitcoin and other digital assets. The introduction of a spot BTC ETF would greatly expand possibilities for corporations and institutional investors to expand their portfolios with digital assets, which would increase the crypto market’s liquidity via the addition of new financial inflows.
