The SEC's decision on VanEck's spot Bitcoin ETF was no surprise for experts in the ETF industry. Most of them previously stated that no physically-backed cryptocurrency ETFs would become available in the country until the SEC finds a way of properly regulating the cryptocurrency trading industry.
Now, the industry has the official answer of the Securities and Exchange Commission, which highlighted numerous reasons in its official disapproval letter. But the positive side of their decision is that the commission acknowledges the importance of a physically-backed product that will provide additional protection to cryptocurrency investors.
The first highlighted the reason why the commission must disapprove of VanEck's product proposal does not fall under the requirement of the Exchange Act, which states that the rules of a national securities exchange are designed to prevent fraudulent and manipulative acts and practices.
For bitcoin-based ETPs, the Commission has consistently required that the listing exchange have a comprehensive surveillance-sharing agreement with a regulated market of significant size related to bitcoin, or demonstrate that other means to prevent fraudulent and manipulative acts and practices. The listing exchange has not met that requirement here.
The abovementioned rule requires the financial product to provide full protection for its investors from any type of market manipulation that, as the SEC believes, is currently impossible for a product related to spot Bitcoin trading pairs.
Another interesting take in the Disapproving Order is that the commission does not believe that currently existing CME Bitcoin futures impact the price of the spot market; hence, the spot-based ETF is not essential. Previously, VanEck stated that the spot market is moving under the leadership of Bitcoin derivatives.
In conclusion, the main reason for the disapproval of the spot-based Bitcoin ETF still remains the same: inability to fully control the decentralized cryptocurrency market. But, in addition to it, the SEC gives us a hint: there is no point in listing such a product at this time since the existing futures-backed products are perfectly doing their part, according to their own research.
Alex Dovbnya
Denys Serhiichuk
Godfrey Benjamin
