Two days after postponing the decision on Direxion’s Bitcoin (BTC) ETF Proposals and five other bitcoin ETFs filed by NYSE Arca, Inc, SEC has come vicious this time as it shattered the dream of Winklevoss twins of launching a bitcoin ETF. This is the second time in two years that Winklevoss twin’s application has been rejected.
Now all eyes will be on CBOE- SolidX Bitcoin ETF which should be next in line for SEC for approval. Although the precedents that the SEC is setting are not really positive, some experts still believe CBOE application is something that can get approved.
Reason for Winklevoss application rejection
The order states that one of the major reason that the application was disapproved is the fact that it couldn’t establish a means of compliance that bitcoin markets are not subject to fraud or manipulation. The Commission also believed that the application must also demonstrate that how it can get into surveillance-sharing agreement with a regulated, bitcoin-related market of significant size just like previously approved commodity-trust ETPs do.
The proposal also failed to support a conclusion that the markets for bitcoin or derivatives on bitcoin are regulated markets of significant size. To quote from the order the commission has stated that
While the Commission concludes that BZX must demonstrate the ability to enter into a surveillance-sharing agreement with a regulated market of significant size related to bitcoin and while this factor strongly supports disapproval of BZX’s proposed rule change, the other factors BZX asks the Commission to weigh also support the disapproval of the proposed rule change.
Even considering these other factors, the Commission does not find BZX’s proposed rule change to be consistent with Exchange Act Section 6(b)(5)’s 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.
Why CBOE still stands a chance
As the SEC has time and again been elaborate that bitcoin’s exchanges are too small and don’t provide security against fraud and manipulation, the protection of investors especially small retail investors stands at risk. Investor protection seems to be the key priority for the SEC.
Looking at all the rejections points of rejection CBOE- SolidX application seems to be fulfilling a large number of queries. Not just that it has also taken care of ensuring investors in case anything goes wrong which the SEC is foreseeing while rejecting the majority of applications. CBOE has taken care of certain key conditions in building its application and seems like has learned from every rejection that has been carried out by SEC. If we analyze the application, the case for the CBOE looks strong which includes
- History of success with SEC (well-established, recognized and regulated exchange, first be approved for BTC futures)
- VanEck is an award-winning and widely recognized investment and money manager
- The digital assets are insured for up to $125 million (or more as needed) by various insurance companies
- Security and technical expertise in blockchain and cryptocurrencies from SolidX
- Targeting high net worth individuals/funds (each share will equal 25 bitcoins ~ $165,000 USD @ $6,500/BTC). This will keep the retail investor at bay which the SEC is concerned of.
CBOE believes that offering ETF products would be beneficial for the industry and markets stating:
“This approach will allow investors to gain exposure to more mature cryptocurrencies through ETPs without the additional complications and risks of the spot market and help to ensure that American capital markets remain fertile ground for capital formation and financial innovation”
In another interview, Chris Concannon, president of CBOE had also mentioned
“Given US investors are clearly already accessing these unregistered financial products, we also believe that investors are better served by products traded on a regulated securities market and protected by robust securities laws”
While CBOE and Bitcoin (BTC) have a history of success and to note that its only CBOE’s application the SEC is seeking public opinion, which suggests it is considering approving the Bitcoin ETF listing request.
Will SEC consider CBOE application and open doors to cryptocurrency-based ETF? Do let us know your views on the same.
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Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.