24/08/2018 20:52

SEC Will Review Rejected Bitcoin ETFs: Why They Will Remain Rejected


This week, the US Securities and Exchange Commission (SEC) has said it will review nine Bitcoin exchange-traded funds (ETFs) it disapproved on August 24.

The letter sent to NYSE Group senior counsel David De Gregorio by SEC secretary Brent Fields read:

“This letter is to notify you that, pursuant to Rule 43 I of the Commission’s Rules of Practice, 17 CFR 20 I .43 1, the Commission will review the delegated action. In accordance with Rule 431 (e), the August 22 order is stayed until the Commission orders otherwise.”

Community is Excited When They Shouldn’t Be

Jake Chervinsky, a government enforcement defense & securities litigation attorney at Kobre Kim LLP, recently explained in a statement that the revision of the ETFs was initiated by SEC commissioner Hester Peirce and that it only takes a single commissioner to order a review.

Last month, upon the disapproval of the Winklevoss Bitcoin ETF, commissioner Peirce expressed her optimism towards ETFs and said that Bitcoin ETFs are worthy enough to hit US markets.

According to Chervinsky, the ordered revision of the nine ETFs is only methodical and the outcome of the revision will lead to the same conclusion the SEC disclosed on August 24.

He said:

“Don’t get too excited, folks. Under Rule 431 of the SEC’s Rules of Practice, it only takes a single Commissioner to order a review like this. Hester Peirce deserves credit & respect for putting up a fight, but there’s no reason to think yesterday’s rejections will be reversed.

Final thought on bitcoin ETFs for the week: the SEC’s primary goal is to exercise jurisdiction over crypto markets (by any means necessary). Congress hasn’t given them regulatory authority, so they’re essentially trying to coerce ETF sponsors into surveilling the market for them.”

As CCN previously reported, the nine ETFs proposed by ProShares and Direxion were disapproved due to their dependence on derivatives and the Bitcoin futures markets operated by the Chicago Board Options Exchange (Cboe) and CME Group.

The two institutions revised their ETF proposals to utilize US futures markets as the trusted price of the ETF due to the government’s disapproval of the reliance of the Winklevoss Bitcoin ETF on the price listed on US-based cryptocurrency exchange Gemini.

But, the SEC emphasized that the US Bitcoin futures market is not large and mature enough to allow institutions to launch ETFs on top of the market.

The official document released by the SEC read:

“[The ETFs have not met the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices. Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.'”

Same Outcome

The SEC has clarified on its stance towards derivatives-based Bitcoin ETFs as it stated that the US futures markets are currently not big enough for ETFs to based their price on futures exchanges.

Whether the SEC revises their decision on the rejected Bitcoin ETFs or not, the argument of the commission on the size of the futures market is relevant and if the futures market itself does not see major improvements or growth in the short-term, derivative-based Bitcoin ETFs will not be approved.