SEC rejects nine applications for bitcoin ETFs

Jay
Clayton is sworn in to testify at a Senate Banking, Housing and
Urban Affairs Committee hearing on his nomination of to be
chairman of the Securities and Exchange
Commission.
REUTERS/Jonathan
Ernst

• On Wednesday evening, the SEC rejected nine
  bitcoin-linked exchange-traded funds.
• The suite of funds were linked to bitcoin futures, a
  structure many market structure experts thought would have an
  easier time gaining approval.
• John Hyland, a early leader of the
  exchange-traded fund industry, say it’s unlikely the SEC
  would approve any type of fund linked to
  bitcoin. 

The bitcoin world was dealt a big blow
when regulators rejected nine exchange-traded funds tied to
bitcoin futures on Wednesday.

These include two products from ProShares, two from
GraniteShares, and five other proposals from
Direxion. 

Markets
Insider

It means the world is still waiting for its first fully
regulated bitcoin ETF product. The funds would have tracked
bitcoin futures trading on regulated US exchanges, not bitcoin
itself.

A bitcoin ETF would likely make it easier for mom-and-pop
to tap into the market, which known for its volatility and market
manipulation. 

Still, it’s not clear if the SEC’s concerns about such a
derivative product will be mollified in 2018. 

John Hyland, a early leader of the exchange-traded fund
industry, put the odds of a bitcoin ETF going live this year at
20%. 

Hyland joined California asset manager Bitwise Asset
Management earlier this year to help get their ETF off the
ground. Unlike other proposals sent to regulators, Bitwise’s ETF
would track a basket of cryptos, not just one. 

Formerly the chief investment officer of United States
Commodity Funds, Hyland is known for pioneering the development
of the first crude oil ETF, the first natural gas ETF, and the
first copper ETF. 

“I was a bit surprised that the SEC bundled them all
together instead of waiting until September to give the same
response to Direxion and GraniteShares,” Hyland said, referring
to the regulator’s rejection of the nine funds. 

Some market observers thought a futures-based ETF would
have had a better chance of approval since they trade on
regulated markets, but the SEC said in a statement that issuers
did not convince the agency that the markets were large enough to
withstand manipulation and support a derivative.

Tabb Group

Volumes in bitcoin futures markets have been on the decline since
late July, with only $18 million of volume trading in a
day. 

An ETF based on bitcoin itself also doesn’t appear to stand a
chance. Richard Johnson, a market structure specialist at
Greenwich Associates, said the SEC desires for the market to be
properly monitored. But this might be an impossible feat to
overcome since much of the volumes in the crypto markets are in
overseas markets in Asia. 

“If that’s what the SEC is saying, that’s not going to change any
time soon,” Johnson said. “Unless an ETF issuer can exclude that
type of volume from the contract volume.”

Take note bitcoin ETF hopefuls.