Bitcoin ETFs shot down by SEC. Here's what's next

The US Securities and Exchange Commission (SEC) has officially rejected requests to list nine cryptocurrency funds, dealing a blow to the digital currency enthusiasts who lobbied hard for the ETFs.

The decision was not particularly surprising – the SEC has cited concerns about market surveillance and manipulation for as long as they have been dealing with cryptocurrency, encouraging exchanges to minimize the risks investors face in an unregulated market. Hester Peirce, an SEC commissioner, promised a review of the decision, but a reversal remains unlikely.

ProShare Capital Management, GraniteShares Advisors, and Direxion Asset Management sponsored the nine ETFs, whose requests had been pending since December and January and were denied in advance of a hard deadline. According to Bloomberg, all nine funds “sought to use futures contracts to get exposure”; several also “[planned] to short Bitcoin.”

The SEC is under pressure to set standards in what until recently amounted to an investing ‘Wild West.’ Investors who bought-in at $20,000, around the peak of last year’s crypto boom, were certainly not pleased when the market dipped to around $6,000 – the neighborhood in which prices have stayed for most of the year.

While regulatory strides have been made, the threat of manipulation remains omnipresent. Chris Matta, co-founder at Crescent Crypto Asset Management, told Bloomberg that small markets and low volumes on some exchanges increase the odds for manipulation. “That’s [the SEC’s] major concern,” he said. “Without having any sort of regulatory body stepping in and policing people doing that, it’s always a possibility.”

But hope remains for cryptocurrency proponents. Peirce said in an interview that she is not opposed to the idea of a bitcoin ETF. Commenting specifically on a proposed fund run by crypto godheads Tyler and Cameron Winklevoss, Peirce said funds “would allow institutions to play a bigger role in the Bitcoin market, which I think would be good for the market and be good for retail investors as well.”

Peirce was the lone vote in favor of the fund, with the other three commissioners voting against it. While the agency declined to comment beyond orders posted after the decision, the documents say that “disapproval does not rest on an evaluation of whether Bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment.”

Investors will wait and hope for future positive rulings. One ETF from VanEck Associates Corp. and SolidX Partners Inc. still awaits a decision – the SEC postponed the initial ruling until this month and could wait until February to rule. Even if it were approved, that product is not the kind of accessible-to-the-masses fund that some investors are clamoring for, with features like a high minimum share price designed specifically to discourage use for that purpose. Until ETF issuers prove market integrity, verdicts from the SEC will likely remain the same.
 

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