Bitcoin ETFs Again Experience Extreme Caution from SEC

3/22/2022

Markets

0 min read

SEC Cryptocurrency ETFs are Not Getting Decided Upon on Schedule

The Securities and Exchange Commission (SEC) is requiring more time to review two Cryptocurrency ETFs that were nearing the agency’s decision dates. In its notice informing that it would need a longer period, the SEC indicated it was still reviewing issues raised during the comment period and that it maintains concerns over potential manipulation and bad actors.

The SEC gave notice in a filing on Monday (March 21) that it will delay the decision on an application by WisdomTree for a spot-based Bitcoin ETF. The original deadline was March 31; the SEC has now moved that out 45 days until May 15. The WisdomTree fund has been rejected by the agency before, back in December, it resubmitted a proposal in February and was approaching the original “decision date” of March 31. WisdomTree and others interested in the future of spot-based crypto ETFs now will have to wait up to another 45 days for an SEC approval or disapproval.

The regulator also gave itself 60 days after April 3 to decide on a proposal by One River Digital Asset Management for a fund it has proposed that tracks the price of Bitcoin adjusted for the carbon toll of mining tokens. The ETF would be called, One River Carbon Neutral Bitcoin Trust. The securitized trust would hold bitcoin and value its shares with an additional adjustment for the cost of offsetting carbon credits.

Excerpt: SEC Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change 3/21/22

The agency is apparently still grappling with concerns and prefers to err on the side of caution. It has indicated before that it isn’t comfortable with a Bitcoin ETF based on spot prices. The SEC has rejected several such applications, including an attempt by the corporate owners of the Grayscale Bitcoin Trust (GBTC) to convert that private-placement trust into an ETF. The Commission has said it is concerned with the lack of surveillance between the U.S. Securities regulators and the unregulated crypto markets.

One River is trying to address the SEC’s concerns by avoiding the issue of an ETF owning Bitcoin directly. Its proposed ETF wouldn’t buy, sell or hold Bitcoin directly through the spot market. Rather, it would use a creation-redemption process with “authorized participants” to guard against “bad actors” trying to manipulate prices and NAV calculations, according to its filing.

Take-Away

SEC Chairman Gary Gensler would prefer not to rush on approval of a novel Bitcoin ETF based on spot prices rather than futures contracts. The agency also delayed a similar decision on an application by Bitwise in February. Gensler, who taught cryptocurrency at MIT would prefer to take time and measure any concerns. The agency did approve several futures-based crypto ETFs last Fall including The ProShares Bitcoin Strategy ETF (ticker: BITO), Valkyrie Bitcoin Strategy ETF (BTF), and VanEck Bitcoin Strategy ETF (XBTF).

Paul Hofman

Managing Editor, Channelchek

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