The thing holding back the SEC from approving a Bitcoin ETF is concerns about market manipulation and illicit activities, which have seen attempts to be addressed but not to a high enough standard. A Bitcoin ETF is an Exchange-traded fund that performance of the world’s largest cryptocurrency. Crypto ETFs would allow investors to diversify their portfolio without actually owning the asset that is being tracked.
Since 2017, the Crypto industry has been dreaming about a Bitcoin ETF. The Winklevoss Twins had previously tried to get a fund off the ground alongside applications from GraniteShares, ProShares, and Direxion. Bitcoins weren’t much of a popular investment at that time and results weren’t positive.
The torch was later carried on by Bitwise Asset Management. The crypto index fund provider has been trying to apply for a Bitcoin ETF to the SEC since January 2019. The SEC had called for more time and had spouted the same reason for not allowing a Bitcoin-based ETF. The SEC claimed that the markets were too volatile and manipulative and it would be difficult to implement regulations for an ETF based on Bitcoin.
The rejection saga continues as the latest to be disappointed were New York-based Wilshire Phoenix and NYSE Arca exchange. NYSE Arca had proposed rule change that’d allow the listing and trading of Wilshire Phoenix’s United States Bitcoin and Treasury Investment Trust. The proposal included both US Treasury Bonds and Bitcoin and hoped to address the SEC’s concerns over market manipulation by automatically rebalancing into bonds during periods of BTC price volatility.
Back in October 2019, the SEC made public that investment management firm Wilshire Phoenix and exchange NYSE Arca had filed an amendment to their Bitcoin ETF application to reflect new circumstances, following the failure of Bitwise.
The amendment was supposedly the result of NYSE Arca being pinned as the problem for Bitwise’s ETF application. In addition, the applicant also pointed out that when ETFs were approved for gold, the regulators had focused on spot and futures markets that have “a meaningful impact on the particular ETP,” although gold is also traded in different market segments, adding:
“Focusing on the spot market is appropriate because the spot market is the market to which the particular ETP would look to determine its NAV.”
Even with Wiltshire Phoenix making such amendments to their application, The SEC went on to publish the rejection on Wednesday stating that the applicants failed to prove that they’d take sufficient measures to prevent manipulation of the Bitcoin market. Citing the same old reason for rejecting Bitcoin ETF’s, the SEC wrote:
“The Commission must disapprove a proposed rule change filed by a national securities exchange if it does not find that the proposed rule change is consistent with the applicable requirements of the Exchange Act — including the requirement under Section 6(b) (5) that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices,” the commission wrote in its 76-page statement on the rejection of the Wilshire Bitcoin ETF rule-change proposal.
Crypto Mom blames SEC
The SEC’s decision saw a massive thrash back from Commissioner Hester Peirce, popularly known as ‘Crypto Mom’. Peirce disagreed with the SEC, stating that the commission has once again disapproved of a proposal that would allow American investors access to Bitcoin via a product listed and traded on a national securities exchange, subject to the commission’s regulatory framework. She further said in her statement:
“This line of disapprovals leads me to conclude that this Commission is unwilling to approve the listing of any product that would provide access to the market for Bitcoin and that no filing will meet the ever-shifting standards that this Commission insists on applying to Bitcoin-related products — and only to Bitcoin-related products.”