After tumbling last night as headlines hit that the SEC rejected another nine Bitcoin ETF applications, cryptocurrencies have stabilized (for now). Additionally, a broad crackdown on crypto in China has not triggered wholesale selling.
Still it is an ugly week again for crytos broadly - though once again Bitcoin is outperforming as investors revert to the dominant player...
China is poised to block more than 120 foreign cryptocurrency exchanges as part of the government’s broader crackdown on activities related to digital money, according to state media. As SCMP reports, authorities will block access in China to 124 websites operated by offshore cryptocurrency exchanges that provide trading services to citizens on the mainland, the Shanghai Securities News, a newspaper affiliated with the country’s financial and markets regulators, reported on Thursday.
It said authorities will also continue to monitor and shut down domestic websites related to cryptocurrency trades and initial coin offerings (ICOs), and ban payment services from accepting cryptocurrencies, including bitcoin. The newspaper cited people close to the Leading Group of Internet Financial Risks Remediation, which was set up by China’s cabinet in 2016 and headed by Pan Gongsheng, a deputy governor of the People’s Bank of China – the country’s central bank.
The report marks the latest effort by Beijing to intensity the clampdown on cryptocurrency activities because of concerns about financial instability.
But the bigger story is, as CoinTelegraph's Marie Huillet reports, the U.S. Securities and Exchange Commission (SEC) has rejected a total of nine applications to list and trade various Bitcoin (BTC) exchange-traded funds (ETFs) from three different applicants, according to a three separate orders published by the SEC today, August 22.
The disapprovals come one day ahead of the anticipated deadline, August 23, stipulated for a pair of BTC ETFs that had been submitted by ProShares in conjunction with the New York Stock Exchange (NYSE) ETF exchange NYSE Arca.
The SEC has now rejected a further seven proposed ETFs alongside the ProShares pair –– these being five further proposed ETFs from Direxion, also for listing on NYSE Arca –– and two proposals from GraniteShares, for listing on CBOE.
For all three disapprovals, the SEC has stated that:
"[T]he Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission's Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange's rules be designed to prevent fraudulent and manipulative acts and practices."
The SEC has today reinforced its qualms over inadequate “resistance to price manipulation” in an insufficiently sized BTC derivatives market. In the case of ProShares’ two ETFs –– and repeated in the two other disapproval orders –– the SEC has stated that:
“Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets 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.”
As a March 2018 registration statement from the SEC noted, “the [ProShares] Funds do not intend to hold Bitcoin Futures Contracts through expiration, but instead intend to either close or ‘roll’ their respective positions.” This had been specifically designated as a potential risk for the two ETFs in question –– in addition to the “extreme volatility and low liquidity” attributed to both Bitcoin spot and derivatives markets.
In today’s three orders, the SEC has however notably stated that:
"[The agency] emphasizes that its 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."
”When the spot market is unregulated –– there must be significant, regulated derivatives markets related to the underlying asset with which the Exchange can enter into a surveillance-sharing agreement.”
This July the SEC rejected the Winklevoss’ petition following their initial application’s denial, in which the twins claim that crypto markets are “uniquely resistant to manipulation.” In their rejection of the petition, the agency said that “the record before the Commission does not support such a conclusion.”
At the beginning of August, the SEC delayed its decision over yet another Bitcoin ETF application –– this time filed by by investment firm VanEck and financial services company SolidX, for trading on CBOE. Notably, instead of proposing a Bitcoin futures-based fund, the application proposed a physically-backed model, which will raise the further question of custody.