Bitcoin investors were dealt a one-two punch across two different continents over the past week: After the Chinese government announced that it will now ban internet access to more than 100 overseas crypto exchanges in its country, the U.S. Securities and Exchange Commission rejected nine proposed Bitcoin ETFs from ProShares, GraniteShares and Direxion, citing concerns that they could be vulnerable to “fraudulent and manipulative acts and practices.”
All of the proposed funds were seeking to gain exposure through the use of futures contracts – including several that would have shorted Bitcoin. The SEC delayed a ruling on another proposed ETF from VanEck SolidX Bitcoin Trust until Sept. 30.
The commission said in its decision that its rules are “designed to prevent fraudulent and manipulative acts and practices,” and the small size of Bitcoin futures market makes it more difficult to prevent fraud.
“Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size,'” the SEC said in its ruling, referring to NYSE Arca, which filed the application on behalf of ProShares.
The SEC’s reasoning for rejecting the latest round of proposed Bitcoin ETFs is similar to what it used when it shot down a proposed rule change in July submitted by Tyler and Cameron Winklevoss which would allow its BATS BZX Exchange to list and trade the Winklevoss Bitcoin Trust’s ETF. While the regulator noted at the time that its ruling “does not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment,” it rejected the Winklevoss twins’ assertion that the Bitcoin markets are “uniquely resistant to manipulation.”
The SEC also rejected a separate proposed Bitcoin ETF from the Winklevoss twins back in January.
While SEC Commissioner Hester Peirce indicated on Twitter that the agency would review the rulings on the nine ETF proposals, Bloomberg notes that a reversal is “unlikely.” Pierce – one of four commissioners at the SEC – appears to be the only person on the board to currently support a Bitcoin ETF, having also been the lone dissenter in the ruling on the Winklevoss ETF as well.
In English: the Commission (Chairman and Commissioners) delegates some tasks to its staff. When the staff acts in such cases, it acts on behalf of the Commission. The Commission may review the staff's action, as will now happen here.
— Hester Peirce (@HesterPeirce) August 23, 2018
Brian Kelly, a cryptocurrency analyst for CNBC, said in an interview on the network’s “Fast Money” program that there would be “a much better shot” of gaining SEC approval for a Bitcoin ETF by early next year, arguing that the Bitcoin futures market is growing at a pace that could ease the commission’s concerns about price manipulation.
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