Why is it difficult to launch a Bitcoin spot ETF? The US SEC lists seven questions

Wu said the author   |   Uncle Tan

Editor of this issue   |   Colin Wu

Bitcoin Spot ETF Deadline Rejected

On November 12, the SEC rejected VanEck’s Bitcoin spot ETF application. On March 1 of this year, Cboe BZX Exchange submitted an application to the SEC to list VanEck’s Bitcoin spot ETF. According to normal work procedures, the SEC needs to respond within 180 days. After the 180-day period expires, the SEC can extend the response period by another two months. Therefore, in early September, the SEC issued an announcement stating that it would respond to VanEck’s Bitcoin spot ETF application before November 14. Since the 14th was a Sunday, the SEC issued a [notice] rejecting the listing of the ETF on the 12th (1).

According to the notice, the SEC determined that BZX failed to meet the requirements of Section 6(b)(5) of the Securities Exchange Act, specifically, failing to “prevent fraud and market manipulation” and “protect investors and the public interest.”

The situation with Bitcoin futures ETFs is different

Just last month, the SEC approved the Bitcoin futures-based ETF (BITO) from Proshares, which gave the outside world confidence in Bitcoin spot ETFs. In fact, in a speech in August this year, SEC Chairman Gary Gensler (2) hinted that he was very interested in passing a Bitcoin futures-based ETF:

"I anticipate that there will be filings under the Investment Company Act (the '40 Act') regarding exchange-traded funds (ETFs). When combined with other federal securities laws, the '40 Act provides important investor protections. Given these important protections, I look forward to the SEC staff's review of such filings, particularly with respect to ETFs limited to CME futures trading."

Proshares' Bitcoin futures ETF is based on CME's Bitcoin futures products, which are only open to qualified institutional investors. In addition, Bitcoin futures fall under the supervision of the CFTC. From the SEC's perspective, since the CFTC has approved Bitcoin futures, there is no problem in launching an ETF product based on its compliant Bitcoin futures.

There is still a long way to go before Bitcoin spot ETF is approved

Previously, the SEC has rejected applications from various institutions for Bitcoin spot ETFs many times, which shows that the SEC’s attitude has not changed. In its reply to VanEck, the SEC specifically listed seven major concerns:

1. Wash trading

2. Whale users manipulate coin prices

3. Bitcoin network and trading website hacked

4. The Bitcoin network is maliciously controlled

5. Insider trading based on non-public information (including false information)

6. Price manipulation by stablecoins like Tether

7. Fraud and manipulation of Bitcoin prices by Bitcoin trading platforms

Many of the above seven concerns are difficult to resolve in a short period of time. For example, although there are many compliant Bitcoin spot exchanges in the United States, a large number of Bitcoin transactions still occur in non-compliant exchanges. Based on the decentralized nature of Bitcoin, it is also difficult to have an effective information disclosure method. If these situations do not change, there may still be a long way to go for Bitcoin spot applicants.