SEC rejects ProShares, GraniteShares and Direxion bitcoin ETF proposals

The ETF proposals were
based on bitcoin futures contract prices. Futures are currently
offered by CBOE, pictured, and CME Group.

Scott
Olson/Getty Images

• The US Securities and Exhanges Commission rejected nine
  bitcoin ETF proposals late on Wednesday.
• The watchdog cited concerns about possible price
  manipulation and insufficient market oversight.
• There is as yet no fully regulated bitcoin ETF
  product.
• Bitcoin bulls believe that if one is approved, it will
  expand the market by bringing in new investors.
• 
  You
  can follow the live bitcoin price on Markets
  Insider.
  

LONDON — The US Securities and Exchange Commission (SEC) has
rejected nine applications to create a bitcoin exchange-traded
fund (ETF) in a blow to bitcoin bulls who had hoped such a
product would prove a breakthrough for institutional adoption.

Late on Wednesday, the SEC rejected an application for two
products from ProShares, two from GraniteShares, and five other
proposals from Direxion. It means the world is still waiting for
its first fully regulated bitcoin ETF product.

The applications were all rejected because the market watchdog
believes not enough is being done to guard against bitcoin price
manipulation. The SEC said the proposals did not do enough to
show they were “designed to prevent fraudulent and manipulative
acts and practices.”

All the applications were linked to bitcoin futures contracts and
the SEC said none of the applications had done enough to show
that the futures markets is of “significant size.”

“That failure is critical because, as explained below, the
Exchange has failed to establish that other means to prevent
fraudulent and manipulative acts and practices will be
sufficient, and therefore surveillance-sharing with a regulated
market of significant size related to bitcoin is necessary,” the
SEC wrote.

In short, if the bitcoin futures market is too small, it could be
manipulated relatively easily. The futures market administrators,
therefore, need to be sharing information with the bitcoin
exchanges that supply their pricing data to ensure they can
investigate and punish any suspected manipulation. These
arrangements are not in place at the moment.

Commodities trading venues CBOE and CME last December launched
the first bitcoin futures products but daily trading volumes
remain small.

The rejection of the ETF applications is a blow to bitcoin bulls
who hope that the launch of such a product will broaden the
appeal of bitcoin, bringing in new investors into the market.

In July, the SEC rejected another application for a bitcoin ETF
product submitted by the Winklevoss twins. The SEC is still
considering other proposals, including the closely watched VanEck
SolidX Bitcoin Trust. The SEC recently delayed its decision on
the VanEck product until September 30.

Bitcoin dropped close to 2% late on Wednesday when the SEC’s
latest rulings were announced. However, the cryptocurrency
quickly recovered. Bitcoin
is up 1.1% against the dollar at 11.55 a.m. BST (6.55 a.m.
ET).

The SEC ruling stressed that the ETF rejections “do not rest on
an evaluation of whether bitcoin, or blockchain technology more
generally, has utility or value as an innovation or an
investment.” This may be providing price support.

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