The Securities Exchange Commission (SEC) rejected nine Bitcoin exchange-traded funds (ETF) proposals in orders published on August 22 involving three separate companies – ProShares (two proposed ETFs), Direxion (five) and GraniteShares (two).  The ETFs in question differed from previous proposals in that they were tied to the market for bitcoin futures, rather than a fund that holds bitcoin directly.  The SEC relied on identical reasoning in all three rejections. 

The SEC stated that the rejections were based on the inability to meet the requirements of paragraph 6(b)(5) of the Exchange Act, which states that the national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.  According to the SEC, the proposals “offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.’  That failure is critical because…the Exchange has failed to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, and therefore surveillance-sharing with a regulated market of significant size related to bitcoin is necessary to satisfy the statutory requirements that the Exchange’s rules be designed to prevent fraudulent and manipulative practices.”

The SEC made it a point to emphasize that the rejections do “not rest on an evaluation of whether bitcoin, or blockchain technology more general, has utility or value as an innovation or an investment,” and also highlighted that trading a bitcoin-based ETP on a national securities exchange may provide some additional protection to investors in comparison to trading in unregulated bitcoin sport markets.

Summary By: Hashim Ghazi

E-TIPS® ISSUE

18 09 05