SEC Rejects Van Eck's Application For Spot Bitcoin ETF

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by Tyler Durden
Friday, Nov 12, 2021 - 12:39 PM

As expected, just before noon ET on Friday, the Securities and Exchange Commission rejected a proposal for an ETF backed by spot Bitcoin, quashing hopes that a long-desired product would finally gain clearance after last month’s debut of the first funds linked to futures of the cryptocurrency.

The decision from the SEC - which had until Sunday to respond but clearly didn't need all that time - denied VanEck approval for its Bitcoin exchange-traded fund to trade on a CBOE Global Markets Inc. platform, marking the first ruling on the subject since the initial Bitcoin futures ETFs launched last month. In a Friday order, the regulator said the firm failed to demonstrate that the proposal would comply with securities rules.

“The Commission has consistently required that the listing exchange have a comprehensive surveillance-sharing agreement with a regulated market of significant size related to Bitcoin, or demonstrate that other means to prevent fraudulent and manipulative acts and practices are sufficient,” the SEC said. “The listing exchange has not met that requirement.”

In other words, while Gary Gensler has conceded that he will greenlight futures-based ETFs, as the SEC regulates futures markets, he will not approve a spot ETF as long as the SEC is unable to regulate the spot ETF market. And since that is by definition decentralized, it's unlikely that the SEC will change its mind at least until a new, and far more pro-crypto administration replaces Biden's.

Discussing the SEC's arguments, Bloomberg ETF specialist Eric Balchunas notes that the SEC's argument came back to "the exchanges and fraud and manipulation" where the burden was again not satisfied. Instead, the SEC would like to see "novel" approaches to protection:

As Balchunas also notes, there's long section where SEC restates all the valid arguments we've all made about how a spot ETF would provide most protection relative to other options. "They seem to ack that but then say it's all meaningless tho bc of survellience sharing requirements of Exchange Act"


Finally, the SEC also addressed the "inconsistency" of not deeming the CME a "regulated market of significant size" in spot denial but then approving futures ETFs. As the ETF strategist notes, "It's such a good point, but SEC doesn't care. Not having it. Basically logic and reason are trumped by technical legality. And that's that."