In Brief:
- The US SEC denied the application for the VanEck Bitcoin ETF.
- SEC has cited concerns like “fraudulent and manipulative acts and practices” in the markets where bitcoin is traded.
- The disapproval order also included concerns like possible “wash trading”.
On Friday, US regulatory body, SEC, disapproved of a high-profile attempt to list a spot Bitcoin ETF to prevent fraud in the crypto market reaching regulated exchanges.
The Securities and Exchange Commission rejected the application for the VanEck Bitcoin ETF over issues like “fraudulent and manipulative acts and practices” in the markets where bitcoin is traded.
If the VanEck Bitcoin ETF had been approved then that would have directly tracked the Bitcoin’s price moves.
As per SEC, the decision to do so was due to the need “to protect investors and the public interest”.
In the disapproval order, The Commission concluded that: BZX 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 Exchange Act Section 6(b)(5), in particular, the requirement that the rules of a national securities exchange be “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest.
It is important to know that Section 6(b) of the Exchange Act presents requirements that a proposed exchange must meet in order to be registered as a national securities exchange.
Also, subsection 5 of Section 6(b) expects the proposed exchange to have rules that, among other things, are “designed to prevent fraudulent and manipulative acts and practices.”
The disapproval order also included concerns like possible “wash trading”, when the same institution is on both sides of the trade, generating extra fees for minimal risk. The order also brought up issues like potential price manipulation by whales who dominate bitcoin; and possible “manipulative activity involving the purported ‘stablecoin’ Tether”.
Jan van Eck, chief executive of VanEck, said: “We are obviously disappointed in today’s update from the SEC declining approval of our physical bitcoin ETF. We continue to believe that investors should have the ability to gain exposure to bitcoin through a regulated investment product and that a non-futures ETF structure is the superior approach.”
Although VanEck has a bitcoin futures ETF that was initially considered operative by the SEC since Oct. 23, it has not yet begun trading. In fact some had expected VanEck’s bitcoin futures ETF would be the first to follow ProShares.
Oddly this rejection comes weeks after the SEC gave a nod to the first futures-based bitcoin ETFs: the ProShares Bitcoin Strategy ETF, which began trading Oct. 19 and saw a $1 billion trading volume, and the Valkyrie Bitcoin Strategy ETF, which began trading Oct. 22. There are several other bitcoin ETF applications awaiting SEC’s approval.
Notably, the appetite for fund-based exposure to the cryptocurrency has significantly increased after ProShares success but SEC has always been strict when it comes to crypto finances.
This is quite evident with the fact that in September, Gary Gensler, chairman of the SEC spoke on crypto regulation and called crypto finance as the “Wild West”, by adding that it is “rife with fraud, scams and abuse”.
