SEC Rejects 9 Bitcoin ETF Applications from ProShares, Direxion and GraniteShares

The U.S. Securities and Exchange Commission has rejected a total of nine applications to list and trade various Bitcoin exchange-traded funds from three different applicants, according to a three separate orders published by the SEC today, August 22.

The disapprovals come one day ahead of the anticipated deadline, August 23, stipulated for a pair of BTC ETFs that had been submitted by ProShares in conjunction with the New York Stock Exchange ETF exchange NYSE Arca.

"[T]he Commission is disapproving this proposed rule change because, as discussed below, the Exchange 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 a national securities exchange's rules be designed to prevent fraudulent and manipulative acts and practices.

The SEC has today reinforced its qualms over inadequate "Resistance to price manipulation" in an insufficiently sized BTC derivatives market.

"Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are 'markets of significant size.' That failure is critical because, as explained below, the Exchange has failed to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, and therefore surveillance-sharing with a regulated market of significant size related to bitcoin is necessary."

As a March 2018 registration statement from the SEC noted, "The [ProShares] Funds do not intend to hold Bitcoin Futures Contracts through expiration, but instead intend to either close or 'roll' their respective positions." This had been specifically designated as a potential risk for the two ETFs in question - in addition to the "Extreme volatility and low liquidity" attributed to both Bitcoin spot and derivatives markets.

"[The agency] 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.

"When the spot market is unregulated - there must be significant, regulated derivatives markets related to the underlying asset with which the Exchange can enter into a surveillance-sharing agreement."

At the beginning of August, the SEC delayed its decision over yet another Bitcoin ETF application - this time filed by by investment firm VanEck and financial services company SolidX, for trading on CBOE. Notably, instead of proposing a Bitcoin futures-based fund, the application proposed a physically-backed model, which will raise the further question of custody.

Bitcoin is currently trading around $6,380, down about 2.2 percent on the day to press time.