On Wednesday, the United States Securities and Exchange Commission (SEC) rejected proposals for Bitcoin exchange-traded funds (ETFs) from three separate issuers.
This decision adds to a string of proposal rejections that are causing uncertainty in futures-based cryptocurrency ETFs. The affected issuers are Direxion, ProShares and GraniteShares.
Direxion had five Bitcoin ETF proposals, while ProShares and GraniteShares each had two proposals.
These rejections came hours before the scheduled deadline for a decision on ProShares funds. The decision had been previously delayed, and further delay was not possible.
SEC’s Review of Recent ETF Proposals
These are not the first ETF proposal rejections in recent times. The SEC rejected an appeal for an ETF fund proposal from the Winklevoss twins.
If the nine proposals had been approved by SEC, they would have had the backing of Bitcoin futures contracts that trade on Cboe and CME exchanges. The SEC justified the rejection on the proposals by voicing concerns about manipulation.
According to the SEC, these two exchanges have not shown that they have solid policies in place for the prevention of manipulative and fraudulent acts and practices. The concern about manipulation has been a common theme in nearly all the ETF proposal rejections over the past year.
Another factor that warranted the rejections is the small size of the Bitcoin futures market. The SEC stated that evidence is lacking to ascertain if CME and Cboe Bitcoin futures trade sufficiently to support an exchange-traded product.
Cboe’s president, Chris Concannon, even stated through a letter that the trading volumes on CME and Cboe Futures Exchange are insufficient to support ETPs.
The SEC is also concerned about the availability of reliable data regarding unregulated spot exchanges. Due to the small size of Bitcoin futures markets in the U.S., exchanges are required to partner up with larger regulated markets, through which investors can be shielded from manipulation and fraud.
The trading data that the exchanges have access to on their own platforms is simply not enough to identify activities taking place off-exchange and on underlying spot markets.
The SEC gave an example of the first futures ETPs, which the commission approved since the exchanges could provide solid data on underlying spot and futures markets. These markets had also traded for several years before the proposal of commodity ETPs.
Given that Bitcoin futures started trading in December last year, the SEC lacks a basis of predicting their growth and development over time.
There is also no way of conclusively determining whether the Bitcoin futures markets will reach a sufficient size to warrant approval consideration.
Although the SEC has rejected up to 10 Bitcoin ETF proposals in 2018, there are still two other proposals that await a decision. These decisions involve the VanEck and SolidX proposal, which has been postponed until September, and the Bitwise Asset Management ETF.
These two proposals seem to have addressed the major concerns of the SEC. For the cryptocurrency enthusiasts, there is still a chance for some great ETF news in 2018.
The SEC has released letters indicating an intention to review their decision to reject the nine proposals, although a decision deadline has not been specified.