Bitcoin ETF proposals return in force

Source: Jake Chervinsky, Crypto Law & Policy Newsletter, Q1 2021 in Review.

Ever since the Winklevoss twins submitted the first Bitcoin ETF proposal in 2013, the crypto industry has been trying (and failing) to convince the SEC to approve an ETF. The last round of ETF proposals ended with the SEC rejecting a proposal from Bitwise on October 9, 2019. A new round has just begun.

In the past, the SEC has rejected Bitcoin ETF proposals like the Winklevoss Bitcoin Trust due to concerns over market manipulation. Specifically, the SEC has said that Exchange Act § 6(b)(5) requires ETF sponsors to get “surveillance-sharing agreements with a regulated market of significant size” to ensure that the ETF is appropriately designed to “prevent fraudulent and manipulative acts and practices.”

Back then, the problem for ETF sponsors was that no regulated market of significant size even existed, since bitcoin was largely priced on unregulated derivatives exchanges like BitMEX. Despite creative efforts by sponsors like Bitwise and VanEck to satisfy the SEC’s concerns, the regulators just couldn’t get comfortable with bitcoin’s market structure as of October 2019.

Eighteen months and one pandemic later, a lot has changed. Bitcoin’s market demand has skyrocketed along with its price; respected investors and corporate treasurers view it as a legitimate inflation hedge; some ETFs that look much riskier have been listed (BUZZ) and others have been destroyed (USO); and the SEC may take a more positive view of bitcoin under Gary Gensler than it did under Jay Clayton. All told, I agree with Bloomberg’s Eric Balchunas that the SEC should approve a Bitcoin ETF this year.

First up is a proposal from VanEck, published in the Federal Register on March 15. That puts the SEC’s final deadline to approve or deny the ETF at November 10, with several intermediate deadlines in between. Right now, I’d give this better than even odds to get approved in early November, just in time for Thanksgiving.

Read more: Jake Chervinsky, Crypto Law & Policy Newsletter, Q1 2021 in Review.


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