The United States Securities and Exchange Commission has denied two physically backed Bitcoin ETFs. Previously, Valkyrie and Kyptoin filed applications for listing spot Bitcoin exchange-traded funds, but both products have not met regulator's standards.
Valkyrie and Kryptoin ETF denial
The SEC has used the same arguments to deny the investment as they did before, with other financial instruments related to spot digital assets. The commission believes that exchanges that are acting as price determinants for assets do not fit the requirements of the commission.
— James Seyffart (@JSeyff) December 22, 2021
Regulators require centralized and decentralized exchanges to prevent fraudulent manipulations and even volatile price fluctuations, which is inherently impossible due to the decentralized nature of almost any asset on the cryptocurrency market.
Commissioners believe that Bitcoin-related exchange-traded products might be significantly affected by manipulation of the spot market, which goes against investors' interest, according to the regulator.
In a nutshell, the commission believes that it should not approve any physically backed crypto ETPs until exchanges that allow users to trade those assets become regulated or even more centralized, which might not be the case for the foreseeable future.
Is there a chance for other applicants?
While the year 2021 is almost over, the market has unfortunately not seen the first physically backed digital assets product from the U.S. As most ETF experts note, the commission most likely will never approve the ETP backed by spot crypto assets as we know them today.
In order to receive the SEC's approval, the cryptocurrency or digital asset should most likely be centralized and managed by an entity working under the laws of the U.S. This goes against all of the principles of cryptocurrencies and decentralization in general.