Investors have been waiting a long time for an ETF that holds cryptocurrencies directly. The Securities and Exchange Commission (SEC) on Friday rejected an application by VanEck to launch a Bitcoin Trust ETF that was meant to directly hold the cryptocurrency, one of the so-called ETFs on “spot Bitcoin”.
Summary
Why the SEC says no to spot Bitcoin ETFs
The report released by the SEC states that the Chicago-based exchange, CBOE, was pushing to list the ETF but failed to demonstrate that the Bitcoin spot market was not subject to manipulation or fraud and could be adequately monitored with a shared oversight agreement with the exchange.
ETFs based on commodity spot markets must meet regulatory standards under the Securities Exchange Act of 1934. But the SEC said VanEck failed to meet regulatory requirements that aim to:
“Prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest”.
VanEck was one of several fund companies seeking approval for a spot-based ETF, in the wake of the SEC’s recent green light for two Bitcoin Futures ETFs: the ProShares Bitcoin Strategy ETF (BITO) and the Valkyrie Bitcoin Strategy ETF (BTF).
The debate
The CBOE had argued that it would be inconsistent for the SEC to approve Futures-based ETFs, but deny a physical Bitcoin ETF based on the same underlying commodity.
The SEC rejected that argument, stating that Futures ETFs were registered under a different law, the Investment Company Act of 1940.
The SEC’s decision makes it unlikely that other applications for Bitcoin ETFs backed by physical BTC will be approved. Futures-based Bitcoin ETFs have been a success. The ProShares ETF, the first to be launched, has amassed more than $1.4 billion in assets since launching on October 19.
However, the ETFs approved so far have some drawbacks, including limits on position sizes and fees associated with continually renewing Futures contracts. Both can reduce returns relative to spot prices.
About Giuseppe Pascarella:
Giuseppe Pascarella is a financial analyst and founder and CEO of PascaProfit Group, one of Italy’s and Europe’s leading analytics firms.
Often guest speaker at important meetings with prominent figures such as Christine Lagarde (number 1 of the ECB) and Ursula Burns (former Obama advisor), he is also active in promoting financial literacy in Italy thanks to his books “Battere il Benchmark” and “Dove metto i miei soldi”.
He is also the founder of Pasca Academy, the first Italian training school for independent financial advisors.
