Bitcoin ETF rejection shows SEC not fully game for price volatility

Karthik Subramanian

The Securities and Exchange Commission (SEC) had rejected an application from VanEck on Friday for a spot Bitcoin Exchange-traded fund (ETF) that it had proposed sometime back, though the commission has allowed other bitcoin related ETF listings recently.

The main difference between this ETF and the others that were approved over the last few weeks by the SEC is the fact that the approved ones were based on Bitcoin futures while this one was based on the spot which means that its value depends a lot on the value of bitcoin itself. While futures are derived instruments which means that the means and the methods used are pretty much the same across almost all instruments, the spot prices are based directly on the underlying and hence its value and the strategy used for trading them would have to vary across instrument classes as each of them would have different characteristics, for example, bitcoin spot is known for its very high volatility not seen in most other instruments.

This is the reason why it was pretty much clear that the SEC was not in favor of such ETFs at this time and the rejection came as no surprise to the experts even though there was a panic sell-off of Bitcoin from the retail market following this news. The SEC cited the risk of market manipulation and other related risks not being accounted for and the submission did not have any strategy to account for the prevention of fraudulent and manipulative practices.

It must be noted that approvals for Bitcoin ETFs were pending with the SEC for a very long time which had increased the uncertainty in the crypto market but it was only last month that the SEC finally decided to go ahead with the approvals for 2 Bitcoin ETFs that were based on the futures. These have been trading in the markets since then and have generally received a lot of support, investments, and positive feedback as well. VanEck has also received approval for its Bitcoin Futures ETF but it has not launched trading on it as yet. It is unlikely that the SEC would approve any ETFs based on Bitcoin spot in the near future as the prices continue to be pretty volatile as the market is not fully mature as yet. It would choose to wait for the markets to settle down and volatility to become lesser before it starts thinking of approving such ETFs.

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