The SEC disapproved several bitcoin ETF proposals last Wednesday. Two of them belonged to ProShares and would track bitcoin futures contracts, and five were inverse and leveraged products from Direxion. A GraniteShares ETF proposal was also rejected. The new development comes after the rejection of the much anticipated Winklevoss ETF in July.
According to the released SEC documents outlining reasons for disapproval, the proposals did not meet the burden of proof in providing sufficient measures against fraud and manipulation. They failed to demonstrate that bitcoin-futures markets are big enough to resist manipulation and did not include a surveillance-sharing market of a significant size that is related to Bitcoin.
And now, according to John Hyland, a veteran of the exchange-traded fund industry, there is little chance that the SEC will approve a bitcoin ETF in the near future. He put the odds of a bitcoin ETF approval in 2018 at 20 percent. Hyland joined Bitwise Asset Management a few months ago to help in the development of their ETF. Unlike the already proposed ones, it would track a bunch of cryptocurrencies and not confined to Bitcoin.
He is widely known for developing the first ETFs tied to crude oil, natural gas, and copper. Although futures-based ETFs were initially thought to stand a better chance at getting a SEC approval, they still have the burden of demonstrating that the market is big enough to support a derivative and withstand manipulation.
As things stand, bitcoin futures markets have been falling, with only about $18 million in volume being traded in a day. According to Hyland, most of the traded volumes are in Asian markets, and this makes them hard to monitor and regulate, and so the situation will continue to be a huge hurdle for cryptocurrency ETFs.
The SEC Bitcoin ETF Rejection Was Fair
According to Morgan Creek Digital Assets founder, Anthony Pompliano, the SEC will eventually approve crypto industry ETFs, but only after proper regulatory structures are set in place, enough to mollify manipulation concerns.
The analyst said that the conditions outlined by the SEC were unlikely to be met in 2018, and that the industry will need to reach a certain level of growth and maturity to be able to fulfill most of them. This, he reiterated, will most certainly require more time.
He also poked holes in the argument that a bitcoin ETF would lead to an exponential price surge, countering that although this is likely to be the case, things can easily go the other way. Anthony cited short selling practices and the subsequent price contractions that occurred nine months ago after the introduction of bitcoin futures, asserting that it is an unpredictable market.
The Morgan Creek exec also supported the SEC’s decision to reject bitcoin ETFs, describing the process as procedural and fair. Pompliano pointed out that the rejections were based on the lack of sufficient malfeasance prevention measures.
He suggested that the crypto community takes note of the recommendations made and implement them accordingly. According to the ETF pioneer’s argument, the problem was not with the asset, but the ecosystem built around it.