U.S. Bitcoin Futures Good, Spot Bad

  • US regulators on Friday rejected a high-profile attempt to list a bitcoin-based exchange traded fund on Wall Street.
  • The SEC has remained consistent in its rejection of a spot-based bitcoin ETF, given that it remains concerned over the lack of a major regulated exchange for bitcoin.
 
 
In an unsurprising move, the U.S. Securities and Exchange Commission has thrown out VanEck’s bitcoin-backed ETF, claiming dissatisfaction with the latter’s plan to prevent “fraudulent and manipulative acts” from reaching regulated markets.
 
Last Friday, the SEC rejected a high-profile attempt to list an actual bitcoin-based ETF on Wall Street, citing concerns over the potential for fraud in the cryptocurrency markets to spill over into regulated exchanges, claiming that it was necessary to “protect investors and the public interest.”
 
Among the concerns raised by the SEC, was the possibility of “wash trading,” where the same counterparty is on both sides of the trade, to generate the impression that a more active market exists than is real, while generating extra fees for minimal risk.
 
The SEC said that potential price manipulation by so-called bitcoin “whales” who hold large amounts of the cryptocurrency, could also possibly engage in “manipulative activity” in conjunction with the stablecoin Tether.
 
While some bitcoin maximalists were hopeful that a U.S. bitcoin-backed ETF would be a possibility after the successful launch of the ProShares Bitcoin Strategy ETF which is backed by CME Group’s cash-settled bitcoin futures, the latest SEC ruling has tempered those expectations and is a reminder that the road to a genuine bitcoin ETF has been and continues to be a long one.
 
As far back as 2013, the Winklevoss twins (of Facebook fame) have been lobbying to launch a bitcoin-backed ETF, but been roundly and repeatedly rejected by the SEC over concerns similar to those that were thrown back at the VanEck application.
Even so, Canada and Europe already have spot cryptocurrency ETFs and VanEck is said to be looking to launch the first such product in Australia soon.
 
However, none of these markets are as deep or as liquid as Wall Street, which is why it remains the Holy Grail for a bitcoin ETF.
 
Speculation that a spot bitcoin ETF would be approved by the SEC pushed bitcoin higher midweek, racing towards a fresh all-time-high, before the rejection of the VanEck application saw a correction back to around US$63,000 into the weekend.
 
The SEC has remained consistent in its rejection of a spot-based bitcoin ETF, given that it remains concerned over the lack of a major regulated exchange for bitcoin.
 
Regulators have said the primary listing exchange for a bitcoin ETF would need to have a comprehensive agreement with a large regulated market related to bitcoin, so that the SEC could monitor that market for potential manipulation or fraud, a goal that remains elusive for now.
 
Given the decentralized forums that bitcoin trades on, it will be some time before the SEC will have sufficient comfort to green light a spot-based bitcoin ETF, even as they are approved in other markets.
 
 
 

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