The SEC continues its rejection of applications for bitcoin spot ETFs, even as enthusiasm around the futures ETF thrives.
The SEC has rejected an application by VanEck, made in Dec. 2020, for a bitcoin spot ETF to trade on Cboe Global Markets Inc. Nov. 14, 2021, was the SEC’s deadline for approving a VanEck spot bitcoin Exchange Traded Fund. Many crypto enthusiasts had hoped that the path to the spot ETF would have been paved by the approval of a bitcoin futures ETF in October 2021, while pessimists don’t believe a spot ETF approval would be approved any time before 2022, and even beyond 2022.
Spot ETFs are ruled by the 1933 Securities Act process, requiring exchanges to submit Form 19b-4 to demonstrate that the underlying market cannot be abused. Futures ETFs are governed by the 1940 Investment Company Act and are not subject to filing a similar form or similar regulations.
SEC chair and former CFTC chairman Gary Gensler approved the first bitcoin futures ETF in late October, which began trading on Oct. 19, and the second one began trading on Oct. 22. He has also made peace with futures-based ETF because futures trade on well-regulated exchanges, with the Commodity Futures Trading Commission overseeing activities on a federal level.
Why the rejection of spot ETF?
Gensler has expressed reluctance to approve a spot bitcoin ETF in the absence of legislation defining which regulatory agencies have control over areas of the crypto industry, such as exchanges. A spot bitcoin ETF would track the price of bitcoin directly, without users having to own the cryptocurrency, and manage the complicated process of setting up wallets, etc. The SEC has expressed its concern that a product based on the spot price of Bitcoin could be in contravention of securities rules because the market is vulnerable to abuse.
An ETF tracks the performance of an underlying asset or asset group and exposes investors to these assets, even though the investors don’t own the assets themselves. A futures ETF is one where a contract that represents the future value of a cryptocurrency is bought or sold. The contract contains an agreement to buy or sell cryptocurrency at a future date. Futures are thus protected from cryptocurrencies’ infamous volatility. If people believe the price of bitcoin will rise, the price of these futures contracts will be high. The value of a bitcoin futures ETF is determined by the movement of the price of the futures contracts. These futures contracts are traded on the Chicago Mercantile Exchange.
A history of rejections
July 2021 marked the eighth anniversary when the Winklevoss twins, Cameron and Tyler, submitted a filing to the SEC for a bitcoin ETF, the Winklevoss Bitcoin Trust. Their application was rejected twice by the SEC. Other companies that have filed and been rejected include ProShares, Direxion and GraniteShares, Bitwise, Wilshire Phoenix, and WisdomTree.
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