The deadline for decisions on three ETF proposals by Bethsada, Maryland based ProShares, New York, New York based Granite Shares and Milwaukee, Wisconsin based Direxion. For all three, the primary reason stated by the SEC regards uncertainty behind cryptocurrency assets:
"...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 relatively small size of the global cryptocurrency market plays into their concerns. The SEC cited this problem in relation to price manipulation where a market is not large enough or does not have enough liquidity.
Long and Short Based Products
ProShares and Granite Shares were both attempting to register two products, a Bitcoin ETF and Short Bitcoin ETF. Direxion proposed five products related to price movement of Bitcoin. Two for short, Daily Bitcoin 1X and 2X Bear Shares, and two for long, Daily Bitcoin 1.25X, 1.5X and 2X Bull Shares. GraniteShares Bitcoin ETF was planned for the Cboe Exchange, while the ProShares and Bull Shares proposals were planned for the NYSE Arca exchange platform.
Although these submissions have been rejected, there are still two more proposals in review with the SEC. These newer submissions take different routes to legitimizing cryptocurrency as a possible exchange traded product.
In Review - VanEck SolidX Bitcoin Trust
VanEck and SolidX filed a joint application for a Bitcoin ETF. The proposal was published on July 2, and was delayed by the SEC earlier this month until September 30, 2018.
Instead of proposing a Bitcoin futures-based fund, the application proposes a physically-backed model. The Shares of the Trust are expected to be listed for trading, subject to notice of issuance, on the Cboe BZX Exchange.
Recently Submitted - First Crypto Index Fund HOLD 10
In October 2017, Bitwise Investments launched the world’s first cryptocurrency index fund. The company proposed an ETF to the SEC that uses that index instead of futures, as the two rejected proposals did. The Bitwise index fund “HOLD 10” is a mix of BTC, ETH, XRP, BCH, LTC, DASH, NEO, ZEC, XMR and ETC, weighted by a 5-year-diluted market cap. On July 24, 2018, the index was submitted to the SEC as the “Bitwise ETF Trust.”
“Our view is that this new area has many similarities to the introduction 10 to 15 years ago of commodity ETFs. At that time, we saw the launch of single-commodity ETFs tracking gold, silver, crude oil, and other commodities, as well as ETFs tracking diversified commodity index baskets. We see a lot of similarities here."
However, If the primary reason for rejecting the proposals is concern with functionality of cryptocurrencies and the market size overall, it’s unlikely these will be accepted either, but these events are still crucial for government regulator education and public awareness. The continued work by these investment companies and the buzz it creates around the coins and technology overall is beneficial to long term growth and potential exchange traded products in the future.
By: BGN Editorial Staff