Bitcoin ETF rejection by SEC in 2018

Bitcoin ETF rejection in 2018
Cryptocurrency is going to change money, our whole lives, society and culture. So, you should take time to learn about it because, you could lose everything you’ve been working for if you don’t, but if you do, you’ll be surely lucky and useful to be alive at the birth of a new asset class, just like being alive during the big bang or creation – the birth of gold.

Cryptocurrency is what the airplane was in the 1930’s, what Rock-n-roll was in the 1950’s, what the internet was in the 1980’s and what the smart phone was in the 2000’s. However, crypto is one the biggest, most innovative movements we may ever see in our lifetime.

Despite yet another Bitcoin ETF rejection by U.S. Security and Exchange Commission (SEC) on 23 August 2018 making it 9 separate applications for bitcoin Exchange Traded Fund (ETFs), Bitcoin price has managed to maintained green light for number of days, breaking $6800 upward resistant level in price to $7100, is an indication that Bitcoin success doesn’t depends on SEC ETF decision.

In our previous article, I briefly explained Bitcoin ETF and how it comes about. While it has been around for a while that crypto universe needs Bitcoin ETF, it appears that (SEC) doesn’t like Bitcoin ETF – when they sought comments on the latest effort to get an exchange-traded fund tied to Bitcoin approved, and you could be wondering what exact problem SEC could have with Bitcoin ETFs.

The SEC had already denied a separate request for the Winklevoss Bitcoin ETF in March 2017, on the basis of regulatory concerns after several years of deliberation, but the VanEck Solidx BitcoinETF proposal attempted to solve those issues (rule change) by setting a price that would be prohibitively expensive for average investor ($200,000 per share). Market participant were wagering on the ETF passed, given its emphasis on institutional investors.

The SEC has rejected 9 Bitcoin ETF proposals to date, from three companies to bring BTC-based ETFs to the market – Proshares, Direxion, and GraniteShare, which were handed out earlier than their deadlines, especially GraniteShares and Direxions which were due on September 15 and 21 respectively.

However, the SEC‘s latest rejection of Bitcoin ETF proposal in August 23, submitted by ProShares in conjunction with the New York Stock Exchange (NYSE) ETF exchange NYSE Arca was not objectively a bad news. The SEC didn’t outright deny the application as it did with the Winklevoss Bitcoin Trust in July, but stressed that the decision was not dependent on whether Bitcoin or blockchain technology inherently has utility or value. This was made known after the SEC initially postponed final decision on VanEck SolidX’s Bitcoin ETF to September 30. 
The SEC is basically worried about market fraudulent and price manipulation. In other word, the SEC is saying that Bitcoin or cryptocurrencies do not have such market, though they could develop in time. The SEC is also worries about Bitcoin ETFs participating in an ecosystem that doesn’t adhere to anti-money –laundering and know-your-customer rules, or worse, encourages non-adherence.

Primary reasons for US SEC BTC ETF disapproval

  • Similarities across the BTC ETFs board of proposals.
  • There were inadequate rules in place to prevent fraudulent and manipulative acts and practices.
  • The products did not comply with the requirements by the “Exchange Act Section 6(b)(5).

The core points of US SEC rejection of Bitcoin ETFs have been greatly challenged by the VanEck and a financial services company Solidx for trading on CBOE, whose fate of BTC ETF proposal await 30th Sept. And more interestingly, Reuter reported that SEC is to review its decision to reject nine applications to list and trade various Bitcoin (BTC) exchange traded funds (ETFs). However, the letter does not specify a deadline for the decision nor what the review will entail.

Some days later, SEC Commissioner Hester M. Peirce published a statement of official dissent from agency’s BTC ETF disapproval and argued that the SEC fundamentally erred with its latest decision and that the agency overstepping its limited role when it focused on the characteristics of the underlying BTC market, rather than the derivatives. She suggested that the disapproval order will likely inhibit the institutionalization of BTC market.

Summarily, it appears that Bitcoin ETF is unlikely in the near term inspite other piling ETF proposals. It wouldn’t surprise me if the government continues to postpone their decision on the BTC ETF proposals, and ultimately didn’t make a final ruling until early 2019. The indifferences in the SEC decisions on several presented Bitcoin ETF proposal represents a maturating market that has already accepted the SEC skepticism of digital currency.

There’s also a growing speculation that approval of BTC ETF by SEC will trigger the next crypto bull run ahead of the last year $19500 landmark. But you need to note that the only thing worse than a rejected Bitcoin ETF is an approved Bitcoin ETF that fails to generate investor’s interest. However, there’s a growing progress and innovation behind the scene in crypto space as a way to attract institutional capital into cryptocurrencies.

Perhaps, while market is obsessively focused on a Bitcoin ETFs, other positive catalysts have gone largely unrecognized. Lately last month, Bloomberg published a report that Goldman Sachs is exploring opportunities to provide cryptocurrency custody services for institutional investors.

The Intercontinental Exchange (ICE) – a parent company of the New York Stock Exchange (NYSE) – oldest and most storied financial institution in the U.S – announced that it’s formed a new company. The new organization, Bakkt, has the stated purpose of enabling consumers and institutions to buy, sell, store, and spend digital assets.
The reality at this point the world doesn’t needs Bitcoin ETF, though it’s starting to look like a distant possibility. Right now, there’s:

  • Over 14 crypto ETFs awaiting approval.
  • Regulated custody solutions for institutional investors (Bakkt, Coinbase, other).
  • China’s possible reversal of the crypto ban (it’s had a year to get the legal framework in place now).
  • Andreessen Horowitz’s new $300 million dollar fund (a16z is a thought leader in the venture capital space, and other firms are almost certainly launching competing funds).

And every week, there’s news around the world of new launches of innovative crypto infrastructures. Ledger, the hardware wallet maker, recently announced institutional custody solutions. Index funds that offer investors a diversified basket of crypto (bitcoin and certain altcoins) have been launched. Reality Share, an asset management firm who launched the first-ever Chinese ETF in June, will be launching a $100 million crypto hedge fund.
Perhaps, 2% of regular investors in the U.S. currently own cryptocurrency. Approximately 0.01% of institutional investors own it. I continue to remain bullish on the long run potential of cryptocurrencies such as Bitcoin and Ethereum, and advise any of my reader, friends and foes who dears for financial freedom to buy in the dip.

1 comment:

  1. You have a great blog - I would think your readership is very high? I am always find this blog for news about money and digital currency !!


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