Looking Ahead To The SEC’s Blockchain ETF Ruling: Part Two — The Future of Blockchain ETFs

The cryptoworld reacted with shock when the US Securities and Exchange Commission (SEC) announced a further delay on their decision on a proposed rule change that would let the Cboe BZX Exchange list a Bitcoin exchange-traded fund (ETF), pushing the decision date back to the end of the year.

This added to the disappointment felt when the US financial watchdog rejected a fund proposed by cryptocurrency exchange Gemini’s Cameron and Tyler Winklevoss earlier in the year.

It’s been a frustrating and disappointing time for the cryptosphere in the face of new rejections and postponements. So, it’s no surprise that some are concerned the decision on the CBoE-VanEck-SolidX Bitcoin ETF could be shelved again until 2019.

This institutional interest in crypto is an integral step towards digital currency gaining the legitimacy and trust it needs to become more mainstream. So, with the outcome of this landmark case getting ever closer, what does this mean for the future of crypto?

The SEC and Blockchain ETFs

The SEC appears to have a slightly divided stance on blockchain ETFs. In July this year they approved plans that make it easier for investment companies to bring new ETFs to market. These proposed changes aim to remove the need for many ETFs to seek special permission from the SEC. This will allow easier development and growth of what the industry describes as ‘plain vanilla’ ETFs.

However, it’s currently undefined as to whether blockchain ETFs fall into this category, or whether they would be classed as an ‘exotic ETF’. SEC Chairman Jay Clayton has said:

“The proposed rule would cover most ETFs operating today and all similar ETFs that sponsors may seek to launch in the future.”

With the SEC rejecting a hefty nine Bitcoin ETF proposals as recently as August, the pathway for blockchain ETFs is still not as clear as it needs to be and it seems conceivable that the SEC could categorise blockchain ETFs as exotic.

There is also the issue that the SEC forbid fund issuers from using the term blockchain in their fund names. When blockchain ETFs began to emerge the SEC stated that the upcoming ETFs were required to provide proof that the majority of their revenue was tied to blockchain, if they were to include mention of this in their name. With the two forefront ETFs unable to offer the admissible metrics, the SEC instead requested that the emergent ETFs change the names of their funds to remove mention of blockchain, or refile and face a delay to market. Both ETFs opted for a name change.

A Look Ahead

At the end of 2018, the SEC is expected to clarify their stance on the CBoE-VanEck-SolidX Bitcoin ETF proposed rule change. The crypto community is waiting with bated breath for an outcome but may need to temper their expectations as the SEC has the regulatory freedom to push back the decision into early March 2019. So, there is potential that we could see the decision postponed again.

The potential impact of this landmark case could change the face of crypto altogether, so it’s no surprise that the cryptosphere is so keen for it to be resolved. If the proposed rule change is successful it could leave a lasting impression on the future of the crypto ecosystem, with the possibility of a more legitimate and widely accepted set of currencies gaining a big boost of confidence with the backing of financial institutions.

This could also lead to the wider adoption of crypto on Wall Street — one of the biggest financial bastions in the Western World. The added legitimacy could lead to crypto becoming mainstream with the potential to become the financial ecosystem of the future.

However, a negative result could also have a game-changing impact, possibly leading to a net loss in the health of the cryptocurrency ecosystem. If this turns out to be the case, it would not be inconceivable to see a notable downturn in Bitcoin, along with a number of alt-coins. If the proposed rule change is denied, it could have a potentially negative influence on market sentiment. This could perhaps lead to day traders trying to short Bitcoin in an attempt to shield from any potential losses.

The fact is, whichever way the decision falls, it will have a lasting impact on the crypto world. With sources currently divided, all the crypto community can do is wait.

In case you missed the first part in this two-part series, you can read up on what Blockchain ETFs are here.

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