The news of rejection concerning the establishment of a bitcoin linked ETF by the SEC has taken the crypto world by storm as the price of bitcoin drops below the threshold of $8,000 immediately after the rejection by SEC.
Before the decision, Bitcoin was trading at a market price value of around $8,300, and after the decision, a major decrimental change of about 3.38% in the price value was seen.
This drop is seen as result of U.S. Securities and Exchange Commission’s (SEC) recent decision of rejecting proposal for the second time, regarding the establishment of a bitcoin-linked ETF, put forward by Cameron and Tyler Winklevoss, well renowned investors and founders of the crypto exchange, Gemini. The recent reviewed proposal was backed by Bats BZX this time around and despite all the revised regulations, it was rejected by the SEC.
The major reason for SEC’s rejection concerning the ETF for the second time is still the persistence of illegal and fraudulent acts being observed on the crypto market, including price manipulation. Despite its stubborn decision of rejecting the proposal again, SEC clarified its positive stance moving into the future regarding the capabilities of cryptocurrency market and acknowledged the innovative potential this market engulfed as a whole. It was stated in the official rejection document 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.
As a conseqeunce of this rejection, the crypto market looses it valuation by almost $11 billion, and the volatility of market is exposed even more by this. The price of bitcoin plummeted sharply in a matter of hours and this sudden drop in the value of bitcoin is not indicating good signs moving into the future.
Previously, this proposal saw a rejection back in 2017 by the SEC owing to all the fraudulent and manipulative activities that had been propagating in the world of cryptocurrency and are still prevalent. It was stated in the previous rejection document that:
As discussed further below, the Commission is disapproving this proposed rule change because it does not find the proposal to be consistent with Section 6(b)(5) of the Exchange Act, which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.
At that point in time, it was heavily implied in the rejection document by the SEC that the current framework of bitcoin is still in the development phase and there are a lot of lapses that needed to be covered before the thought of establishing a crypto based ETF is even considered. The volatility and instability seen in the crypto market is also not idealistic for the investors at this current point in time and might not be good for the financial sector at all.
The Commission notes that bitcoin is still in the relatively early stages of its development and that, over time, regulated bitcoin-related markets of significant size may develop,” the document reads. “Should such markets develop, the Commission could consider whether a bitcoin ETP would based on the facts and circumstances then presented, be consistent with the requirements of the Exchange Act.
But before making any strong assumptions regarding SEC’s stance in relation to the establishment of a bitcoin ETF, another proposal regarding such an ETF has also been proposed by VanEck previously and comments regarding VanEck’s proposal have been held up by the SEC, up until September, 2018.
SEC surely seems to acknowledge the demands made by public regarding the establishment of a crypto based ETF. In the recent past, SEC also asked for financial analysts, economists, investors, CIOs etc., to give their comments regarding a crypto based ETF, which were later posted on the official website of the U.S. Securities and Exchange Commission.
As the SEC seems to show little inclination towards the proposition of the establishment of a crypto-based ETF, despite of all the rejections up until now, it is still expected that such an ETF will be established at some point in time owing to its dire need in the crypto market.
Brian Kelly, the Chief Executive Officer of BKCM, suggested that although it is the need of the hour to get a crypto based ETF, SEC might just not approve it as of yet, at least until the end of 2018.
I also hope there is an ETF. But I think the chances of a bitcoin ETF in 2018 are relatively low. There is still quite a few things. That doesn’t stop speculation on that. That’s one reason why we’ve seen this bottoming process here from $5,800 to $8,500.
Bob Pisani, a financial expert at CNBC, stated that his personal encounters with the higher authorities at SEC also hint at the application of a “go slow” approach regarding the proposals of such ETFs. The summary of speculations, from some heavyweight experts of the financial sector, concerning the development of such crypto-based ETFs is elaborated in detail in this video from CNBC.
In a nutshell, even though the SEC might seem to reject proposals regarding the crypto-based ETF as of now, it is a strong possibility that such an ETF will get established very soon owing to such a heavy demand in the near future, if not in 2018.