The demands for a bitcoin exchange traded fund (ETF) have been rising exponentially. And one institution that wants to be the very first in the chase of listing a bitcoin ETF is Cboe Global Market Inc. The corporation has been eagerly waiting for a bitcoin ETF to get approved so that it can be listed on the exchange. But one regulatory body that has been standing in its way is the United States Securities and Exchange Commission, known as the SEC.
Cboe has been active in making bitcoin acceptable across the financial space. Last year in December, future contracts for bitcoins were also announced by the exchange making bitcoin more official. These futures can act as a basis for the establishment of a bitcoin ETF. But still an ETF has not been approved by the regulating body SEC.
Major developments are being made by mainstream organizations to make bitcoin a well-accepted store of value. Digital markets are booming on the global scale and there is a strong need for institutional investors to accept the legitimacy of digital market. But without an exchange traded-fund, such investors hold back from investing in this market owing to the instability and insecurity it provides. Nobody wants to invest in something that does not guarantee security. The SEC has not been so keen on approving a bitcoin ETF lately, owing to the manipulation that has been present in the crypto market on a large scale. In the rejection of the ETF proposal put forward by the Winklevoss twins, which was backed by Bats BZX, the regulating body stated that:
Although the Commission is disapproving this proposed rule change, the Commission emphasizes that its disapproval does not rest on an evaluation of whether bitcoin or blockchain technology more generally has utility or value as an innovation or an investment. Rather, the Commission is disapproving this proposed rule change because as discussed in detail below, BZX has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.
In the recent developments made at the SEC, the regulatory body delayed its decision regarding the VanEck/SolidX ETF proposal. This ETF is supposed to listed on Cboe as soon it is approved. But as the marketplace is still in the nascent phase, the protection of investors is not fully guaranteed at the moment. SEC is of the view that safeguarding investors and the public interest is the ultimate priority.
The concerns raised by the SEC were also tackled by VanEck in a letter sent publicly to the regulating body. It was stated in the letter that the concerns are well-established, but the establishment of an ETF will reduce the concerns in the long run.
“We have considered the concerns expressed by Chairman Jay Clayton as well as those expressed by the Commission in the disapproval orders from March 2017 with respect to the listing of two bitcoin ETFs (which would not have been registered investment companies under the 1940 Act). Furthermore, we acknowledge the cited concerns raised by the media and academia with respect to manipulation in the underlying digital asset markets. However, we believe that all of these concerns are reduced with the introduction of a regulated, U.S. exchange-traded product such as our proposed ETF. While one cannot rule out manipulation in the underlying spot market, we believe that, due to the diversified ownership and volume oftrading, the market does not have major, structural vulnerabilities. Therefore, the Commission’s increased enforcement and regulatory actions can reduce the number of bad actors in a basically sound market. A regulated fund is a natural extension of this.”
Another concern that is related with the futures offered by the exchange is liquidity. SEC remains on the back foot about approving an ETF while there is such low liquidity in the underlying futures. The trading volumes for the bitcoin futures are very low as compared to oil or gold, but as more developments are made in the form of an ETF, liquidity is expected to improve.
It is stated in the letter that:
Furthermore, we, as well as the futures exchanges, have had conversations with market makers and authorized participants. They have represented to us that they are ready to provide additional liquidity for the underlying futures market. We expect that the futures market will grow proportionally to our proposed ETF and that such growth will fuel additional interest by other investors, thereby adding additional liquidity.
All in all, Cboe has been spearheading the race for getting a bitcoin ETF established so that it can list it on its exchange first. But since SEC has further delayed its decision regarding the VanEck/SolidX ETF proposal, the race seems to be long for Cboe.
Also, the establishment of a bitcoin ETF does not seem very probable this year. Although some experts have predicted the establishment of such an ETF soon, but most experts are skeptical about an ETF getting approved this year owing to the absence of regulation and prevalent nature of manipulation currently present in the market. So, the race for listing a bitcoin ETF on its exchange first remains to be finished for the Cboe Global Markets Inc.