Approval or Not: Spot Bitcoin ETF Still Blur

A number of Bitcoin futures exchange-traded funds are now trading in the US with many more to follow. However, a spot Bitcoin ETF still seems far off. Yet, what keeps ETF enthusiasts hopeful is that the recent approval of a futures ETF is filed under the same law that governs spot bitcoin ETF applications. This very thing is indicative of Spot Bitcoin NTF being cleared next.

Understanding the Spot Bitcoin ETF

A Bitcoin ETF comprises bitcoin or assets related to Bitcoin’s price. They are traded on a conventional exchange instead of a cryptocurrency exchange. Theoretically, bitcoin is purchased by the company, securitized, and sold or traded on an exchange. 

A spot bitcoin ETF trades on bitcoin prices instead of futures ETFs, which trade based on the price of bitcoin futures. Bitcoin futures have relatively lower demand than spot bitcoin. Moreover, it isn’t directly in relation to the price of bitcoin, since they are futures. Crypto industry people have been pushing for a spot ETF as it is a safe way for traders to venture into bitcoin trading without any direct investment in the cryptocurrency itself.

Also Read: Launch of ETF Futures on Cryptocurrency in India Indicates an End of Hostility, Says PayBitoPro Chief

The Sequence of Actions

When yet another bitcoin futures ETF found approval for the U.S market, last week, it revived hope for the other variant. Due to the similarity in the structures of bitcoin futures ETFs and spot bitcoin ETFs, industry folks anticipated the SEC would approve of it next. However, following a few recent rejections, the much-awaited event still appears at a distance.      

Also Read: Energy-Efficient Digital Asset: Crypto Mining Enters the Green League

SEC Speaks

SEC Chairman Gary Gensler last year revealed that he felt more comfortable with 40 Act funds because of the investor protections enclosed within the law, alongside the market surveillance tools overseeing the futures market. The bulk of the volume rests on the Chicago Mercantile Exchange, which is a traditional firm with long-standing surveillance tools in place.

The SEC’s recent rejection notices seem to reflect this premise.

The Commission concludes that BZX has not met its burden under the Exchange Act. Moreover, the Commission’s Rules of Practice demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b). Therefore, the rules of a national securities exchange must prevent fraudulent and manipulative acts and practices. Moreover. to protect investors and the public interest. Thereby, as written by SEC staffers in rejecting the ARK21Shares Bitcoin ETF.

This was a repeat of an earlier rejection of the NYDIG Bitcoin ETF.

In its latest rejections, the SEC writes that the stock exchanges sponsoring spot crypto ETFs have not provided sufficient arguments. Thereby, addressing the agency’s concerns regarding manipulation and fraud.

“Such possible sources have included

(1) ‘wash’ trading,

(2) persons with a dominant position in Bitcoin manipulating Bitcoin pricing,

(3) hacking of the Bitcoin network and trading platforms,

(4) malicious control of the Bitcoin network,

(5) trading based on material, non-public information, including the dissemination of false and misleading information,

(6) manipulative activity involving the purported ‘stablecoin’ Tether (USDT)

(7) fraud and manipulation at bitcoin trading platforms,” states the SEC.

To Sum Up

While it was an early celebration for the ETF industry, it will take a while before the approvals for spot bitcoin ETF trade. While speculations are full on, it will probably stretch out 2023 before the good news strikes.