On the 5th of November this year, one part of the crypto community has been waiting to hear an official decision from the SEC, regarding nine Bitcoin or BTC exchange-traded funds (ETFs).
However, the statement expected never came, as the 5th of November has been the deadline for the public to relinquish their comments to the Commission, in order to help the agency review the case. Here is everything you have to know about the current situation of the crypto-related ETFs in the US.
What are BTC ETFs and why are they important?
Basically, an ETF is actually a kind of investment fund which is tied to the price of an underlying asset, like a commodity, an index, bonds or even a basket of assets, like an index fund and it is traded on exchanges, being available for retail, as well as institutional investors.
In turn, a Bitcoin ETF tracks the BTC as the underlying asset. It is an indirect way of buying Bitcoin, where the investors just hold the corresponding security without the need to store the actual coins. If it gets listed on a regulated US exchange, it could actually pave the way for some large mainstream investors, probably pushing BTC toward broader recognition on Wall Street.
On August 22nd, the SEC has rejected a total of nine applications of different BTC ETFs from three different applicants. Two of them have been submitted by the ProShares in conjunction with the NYSE or New York Stock Exchange ETF exchange NYSE Arca, five of them being presented by the Direxion, and the rest of them introduced by GraniteShares.
Explaining the decisions of denying the proposals, the SEC has cited the BTC futures as unimportant in size, and the possibility of fraudulent, as well as manipulative acts and practices, among the other circumstances in all of the three denials.
SEC explained that the exchange has offered no record evidence to demonstrate that BTC futures markets are markets of important size. That failure is actually critical as the exchange has failed to establish that other means, to prevent the fraudulent and manipulative acts, as well as practices are going to be enough, and hence, surveillance-sharing with a regulated market of considerable size related to BTC is necessary.
The review of SEC of the nine ETFs
But, on the 23rd of August, the agency also made a U-turn and stated that it is going to review its decision of all the nine ETFs in future. More precisely, the commissioner of SEC, named Hester M. Pierce, posted a tweet to explain that the resolution has been reached by the officials of SEC who were delighted with their task by the chairman and commissioners, who after that decided to reassess their action.
The commissioner also interfered after some SEC decisions from previously on the crypto ETFs. On the 26th of July, soon after the rejection of SEC on the application of Winklevoss brothers for a BTC EFT, Pierce released a statement in which she opined that the move of the agency actually sends some strong signal which says that innovation is not welcome in their markets. A sign which may actually have the effect far beyond the fate of BTC ETFs. Furthermore, she has claimed that the agency overstepped its limited role, as it has focused on the underlying BTC market, instead of the derivative itself.
On the 4th of October, the regulator actually issued a corrected order scheduling filing on the initially rejected nine cryptos ETFs, where it clarified that by the 5th of November of this year, any party or another person may submit a statement supporting or opposing the action made pursuant to delegated authority.
For the SEC it is a common practice to ask the public to weigh in – for example, the regulator received more than 1,300 comments on the proposed rule change of listing and trading shares of the VanEck SolidX ETF, and then it requested more.
Although, many members of the community have been confused by a rumor about the deadline for the SEC decision, and it actually expected the agency to publish a statement. Decisions on ETFs were also crucial for the community, as the green light from regulators in cases like that may add a lot of legitimacy to the crypto market.
Is the SEC going to approve the ETFs?
Not likely, but there is always an opportunity. SEC declined all of the crypto-related ETFs since March last year when it actually rejected the first one, a BTC ETF which was run by the Winklevoss brothers. The decision has been based on the concerns which said that important markets for BTC are unregulated.
Despite this batch, one of the most promising ETFs is the one which is powered by investment firm VanEck, as well as financial service company SolidX, with an additional accent on insurance: the VanEck SolidX BTC ETF is derivative-backed, according to one press release, implying that the firms are going to hold BTC. This is allegedly going to protect against the loss of theft of the cryptocurrency, which may be essential factors for the exchange.
While there is still no definite deadline for the nine BTC ETFs, the VanEck SolidX Bitcoin ETF is going to be reviewed by the watchdog until February next year. By that time, the industry can also be more prepared for the SEC scrutiny. Thus, the cryptoanalyst of CNBC, named Brian Kelly, argued that according to some statistics from Chicago Mercantile Exchange or CME derivatives marketplace, the futures market will evolve quickly and that will probably have a better shot at BTC ETF approval by 2019.
He said that the CME Futures opens some interest for larger holders. As of April, investors will see some significant increase, somewhere about 85% growth rate and if they extrapolate that out, by February next year, they will have a very robust market.