The Truth About Bitcoin ETF Rejections

CrowdConscious

Published in

The Cryptoverse

4 min readAug 23, 2018

On Today’s Episode of The Cryptoverse…

I would like to do what many of you tell me I do best which is to soothe your anxiety.

Epsiode Transcript

“Almost every crypto media news outlet today features a similar headline.

They’re all about the SEC rejecting a bunch of Bitcoin ETF proposals.

If you only read the headlines, you might start to panic a little.

But that’s what you’re doing here, right? You’ve come for a sanity check so let’s give you one.

Now I’ll be honest and say I wasn’t aware that decisions on some ETFs were due on the 23rd of August.

Turns out that was the due date for a decision several Bitcoin ETF proposals.

The proposals were from ProShares, Direxion and GraniteShares.

What I don’t like about these ETFs is that they would be backed by Bitcoin futures contracts from the CME rather than physically holding the Bitcoin.

I much prefer the VanEck-SolidX ETF, which is set to buy the actual Bitcoin.

The Van-Eck ETF is the one set for an approval decision on the 30th of September.

Source:

https://www.cryptoglobe.com/latest/2018/08/bitcoin-etf-decision-behind-large-number-of-short-sells-analysts-believe/

The bottom line is that ProShares, Direxion and GraniteShares ETFs have all been rejected by US regulators.

Each rejection has its own documented ruling which are publicly available.

Source:

CoinDesk points out in their coverage of this story that the SEC used the exact same reasoning in all it’s rejections.

https://www.coindesk.com/sec-rejects-7-bitcoin-etf-proposals/

The reasoning is that…

“…proposal is not consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.”

To that I say how come the Gold and Silver markets are allowed to continue trading they way they are?

Maybe there are ongoing investigations in that regard and I’m uninformed.

It was just the first thing that came to mind.

What I think they are getting at is that even if they approved these ETFs most of the trading volume is still not within their ability to police.

Source:

https://bitsonline.com/sec-rejections-bitcoin-etf/

As Todd Byrne points out in his article from the Blockchain Institute of Technology, the largest Bitcoin exchanges are outside the US.

Quote:

“Currently the largest crypto based exchanges include:

Malta based Binance,
Hong Kong based Bitfinex, and
Luxembourg based Bitstamp.”

This means that investors in a Bitcoin ETF are at risk of price manipulation on these exchanges.

That price manipulation would affect the value of the Bitcoin ETF and the SEC couldn’t do much about it.

This is actually something that stems from the decentralised and owner-less nature of Bitcoin.

It’s not like a US based financial product that the rest of the world invests in.

They are trying to rule something that lives on the Internet, a geography in cyberspace and effective above all national laws.

If this is the real barrier then there’s nothing any of these ETF proposals can do to get approval, because the problem does not lie in the structure of their proposals.

The problem lies in the very fact that Bitcoin is a decentralised global asset that lives on the Internet.

Based on the way they have worded these rulings, it sounds like the SEC want surveillance into all Bitcoin exchanges around the world…

Which would give them the ability to spot manipulation and investigate it.

To me that sounds like an almost impossible standard.

The good news is that despite this “bad news” the Bitcoin price has stayed in the same range it’s been in for the last 7 days.