A Deeper Look Inside the SEC's Bitcoin ETF Rejections

While the broader cryptocurrency community awaited the U.S. Securities and Exchange Commission's decision on Bitcoin Exchange Traded Funds, the watchdog rejected all nine applications made by three different players in one sweeping move on Aug. 22.SEC's Clean Sweep.

The SEC revealed its stance on the disapproval, stating the cryptocurrency market is insufficiently equipped to prevent financial manipulation, fraudulent schemes and has an absence of stringent investor protection rules.

All three disapprovals posses a unifying theme in regard to the SEC's disallowance: Bitcoin markets aren't massive enough to require a sophisticated, government-backed financial instrument at this stage.

Referring to a March 2018 judgment on ProShare's ETF proposal, the SEC pointed out that the company "Does not intend to hold Bitcoin Futures Contracts through expiration." Instead, ProShares aims to "Close or roll their respective positions," opinioned the SEC at the time.

"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."

To sum up the SEC's judgment, the facts show the lack of regulations as the authority's primary concern, instead of Bitcoin or other cryptocurrencies themselves.

In March 2017, the watchdog provided similar reasons for the rejected Bitcoin ETF application from the Winklevoss twins, owners of Gemini, stating a significant derivative market for Bitcoins must exist before a "Surveillance-sharing agreement" can take place.

In July 2018, the Winklevoss twins tried their luck at an ETF approval again, along with providing evidence of the cryptocurrency market's "Resistance to manipulation." However, the SEC was quick to reject the idea while stating "The agency does not support such a conclusion."

More recently, in August, a Bitcoin-ETF filed by investment firm VanEck and financial services provider SolidX was rejected by the SEC. The ETF was perhaps more innovative than those of ProShares or Gemini as it offered physically-delivered Bitcoins instead of a derivative.

The SEC cited its usual reasons for the disapproval, but this time, adding the lack of storage for "Physical" Bitcoins as a major concern.