SEC Initiates Formal Proceedings on Coveted Bitcoin ETF
Efforts to list the first bitcoin exchange-traded funds (ETFs) may not be dead after all. According to a recent document published by the U.S. Securities and Exchange Commission (SEC), formal proceedings on the matter are set to begin in the near future.
SEC Considers Rule Change
The SEC has launched an inquiry on whether to approve a rule change that would enable the New York Stock Exchange to list two bitcoin ETFs. The two ETFs in question were proposed by ProShares last year, but later withdrawn due to backlash from the Washington-based regulator.
The proposed funds would provide exposure to bitcoin futures contracts, giving investors a new way to diversify into the digital asset class.
According to the documents, the rule in question is Section 19(b)(2)(B) of the 1934 Securities and Exchange Act.
“The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act to determine whether the proposed rule change should be approved or disapproved,” the agency said. “Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved.”
By opening formal proceedings, the SEC is allowing for additional analysis of whether the proposed rule change is consistent with the Act. The proposed change was first published for public comment on Dec. 26.
The Elusive Quest for Bitcoin ETFs
Several fund issuers have formally attempted to get their bitcoin ETF listed on a major exchange, but each one was struck down by the SEC over liquidity and valuation risks. ProShares, Direxion and Exchange Lssted Funds were the most recent issuers to formally withdraw their bid. VanEck, REX ETF and the Winklevoss brothers have all struck out on listing their bitcoin fund.
We speculated last week that bitcoin ETFs may be inching closer to reality after CBOE notified the SEC that it intends to pursue a listing. Chris Concannon, CBOE’s president, sent a letter to the agency arguing that a crypto-based fund would not require significant revision to existing rules governing valuation, liquidity and arbitrage. He added that each proposal “should be evaluated on a case by case basis in a manner very similar to previous funds and their underlying holdings.”
CBOE has encouraged the SEC not to stand in the way of crypto-based funds – an argument that has more merit given the exchange’s successful listing of bitcoin futures in December.
A crypto-backed ETF would theoretically enable more traders to access digital assets on the open market without having to rely on digital exchanges or wallet providers. For crypto assets themselves, it could mean greater institutional adoption and liquidity.
Some analysts argue that it’s only a matter of time before the first bitcoin ETF is launched. The only question is who will be the one to break the ice.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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