Bitcoin ETF rejection is a mere stumbling block

Tony Sagami

On July 26, the U.S. Securities and Exchange Commission again rejected an application from the Winklevoss twins to launch a new Bitcoin Exchange-Traded Fund (ETF).

When the news hit the tape, the price of Bitcoin dropped by 4% within a one hour, falling from $8,315 to $7,930.

Why the rejection?

The SEC says its because the Bitcoin ETF application is not

“… consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that its rules be designed to prevent fraudulent and manipulative acts and practices.

“The Commission thus cannot, on the record before it, conclude that Bitcoin markets are uniquely resistant to manipulation.”

The SEC cited the same reason back in March 2017 when it rejected the first Bitcoin ETF application. I guess the SEC deserves a couple brownie points for consistency.

It’s true the market cap of most individual cryptocurrencies is small. And that does make it easier for some bad guys to manipulate the price. But this is quickly changing as cryptocurrencies become more popular.

A lot of experts agree, including some at the SEC itself. “Over time, regulated Bitcoin-related markets may continue to grow and develop,” they say.

The signal they’re sending is clear: They’re rejecting crypto ETFs right now. But that doesn’t mean they’ll do so forever.

The SEC is leaving the door open for a crypto-based ETF to be approved in the future.

The SEC might have shot down the Winklevoss’ fund. But they aren’t the only ones with the same idea. There are five other crypto ETF proposals sitting on the SEC’s desk, and at leaset one could be reviewed — and perhaps even approved — at almost any time.

Moreover, one of the SEC commissioners, Hester Peirce, was very critical of the crypto ETF rejection and expressed her disappointment with the decision.

“The Commission addresses each of these arguments below. In Section III.B, the Commission addresses BZX’s assertion that Bitcoin and Bitcoin markets, including the Gemini Exchange, are uniquely resistant to manipulation and finds that the record before the Commission does not support such a conclusion.”

Peirce even went as far to say that the rejection actually undermined investor protection by effectively dismissing the mainstreaming of Bitcoin.

“In addition, I am concerned that the Commission’s approach undermined investor protection by precluding greater institutionalization of the Bitcoin market. More institutional participation would ameliorate many of the Commission’s concerns with the Bitcoin market that underlie its disapproval order,” said Peirce.

Even without Peirce’s enthusiastic support, I think it’s only a matter of time before a crypto ETF becomes available. My guess is that the first one will be a Bitcoin-based ETF, and I expect the price of Bitcoin to surge as a result.

Best wishes,

Tony

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