SEC rejects VanEck’s bid for physical bitcoin ETF

The SEC said it was not confident the VanEck Bitcoin Trust could offer protections from the volatile price swings and potential manipulation in the market for the world’s largest crypto currency

The Securities and Exchange Commission (SEC) has rejected VanEck’s bid to become the first issuer of a physically-backed bitcoin ETF in the US, marking the latest defeat in the crypto currency community’s efforts to expand the asset class’s mainstream acceptance.

In a filing Friday morning, the SEC said it was not confident the VanEck Bitcoin Trust could offer protections from the volatile price swings and potential manipulation in the market for the world’s largest crypto currency. Regulators were required by law to issue an up-or-down decision on the application by Sunday.

In particular, the regulatory body said Cboe Global Markets, the exchange of choice for the VanEck application, still lacks a surveillance-sharing agreement to detect fraud. That made the application impossible to approve, despite the exchange arguing that the growth of the bitcoin futures market and spot bitcoin liquidity would provide a buffer against the risks in buying into existing bitcoin-based products on over-the-counter-markets.

Such resistance to fraud and manipulation, however, must be novel and beyond those protections that exist in traditional commodity markets or equity markets for which the Commission has long required surveillance sharing agreements in the context of listing derivative securities products. No listing exchange has satisfied its burden to make such demonstration, the SEC said.

The decision should not come as a surprise to industry watchers, as the SEC has long been sceptical of allowing ETFs to hold bitcoin ever since the Winklevoss twins made the first application in 2013.

In a statement, CEO Jan van Eck said the firm is disappointed in the denial: We continue to believe that investors should have the ability to gain exposure to bitcoin through a regulated investment product and that a non-futures ETF structure is the superior approach.

SEC Chairman Gary Gensler reiterated his position in an interview with Yahoo Finance days after the launch of the first US-listed bitcoin ETFs, emphasising his concerns over investor protections in the crypto space.

It’s really a matter of bringing as much of this space into the investor protection remit, he said.

Laura Morrison, Cboe’s head of ETF listings, said clinching surveillance agreements with the number of exchanges that trade bitcoin around the world would be daunting, and a potentially impossible task. More direct regulation over the crypto currency exchanges or those exchanges joining the Intermarket Surveillance Group may help alleviate the SEC’s worries, she said.

However, Morrison argued the US is losing ground in the crypto currency market compared to other countries that have approved spot bitcoin investment vehicles.

For us to take this long to be able to provide this type of tool, it does feel a little bit like we are just behind the eight ball, she said.