Motivations for a Bitcoin ETF
As Bitcoin matures into a viable asset class investors demand easier ways to join the burgeoning market. Apart from retail interest, institutions have billions of dollars on the sidelines patiently waiting to enter the market.
The S-1 filing describes shares of the ETF to be “Easily Accessible and Cost Efficient.” The Winklevoss Bitcoin Trust will allow investors to avoid the process of purchasing bitcoins on exchanges and having to handle security and storage. Shares would trade just like stocks, allowing mainstream investors to enter the market through an existing broker easily.
SEC Ruling: Winklevoss’ ETF Denied
Recently, the SEC denied The Winklevoss’ Bats BZX Exchange, Inc. (BZX) second ETF proposal. The Commission was careful to emphasize that the decision denying a Bitcoin ETF does not rest on evaluating whether or not bitcoin has inherent value.
Manipulation Still a Primary Concern
The SEC has yet to approve a digital currency-based ETF. In the latest decision, the SEC noted that more than 75% of the volume of bitcoin trading occurs outside the U.S., with only 5% of trading taking place on U.S. exchanges. Many overseas exchanges are unregulated, making markets susceptible to illegal market manipulation strategies such as wash trading.
SEC Commissioner Dissents
According to Commissioner Hester Peirce, the disapproval order focuses on the characteristics of the spot market for bitcoin, rather than on the ability of BZX to surveil trading of and to deter manipulation in their listed shares. Peirce noted if the disapproval order’s rigorous standard were applied consistently, many commodity-based ETFs would not pass.
Approval of this order would demonstrate the SEC’s commitment to acting within the scope of their limited role in regulating the securities markets. The disapproval denies investors from accessing Bitcoin through a predictable, transparent, and simplified product.
100% Chance of a Bitcoin ETF
The Winklevoss twins aren’t alone in the Bitcoin ETF space. On July 24th, the SEC delayed its decision on a separate Bitcoin ETF application from investment firm Direxion. Bitwise also filed its own application that would track an index of ten cryptocurrencies.
Jan van Eck, CEO of VanEck Associates is 100% certain the SEC will pass a Bitcoin ETF in the long run. The VanEck, Cboe, and SolidX partnership currently awaits SEC ruling on their proposed Bitcoin ETF. VanEck is hopeful of gaining approval addressing the SEC’s concerns here. Mark your calendars — the ruling is expected to occur between August 10th and 16th.
The disapproval order unintentionally undermines investor protection, precluding investors from benefiting from the increased institutional discipline that comes with approval. Bitcoin markets are steadily maturing, and mainstream finance is knocking at the door. Mass adoption is so close yet so far.