Why Do The SEC Considers Rule Change To Allow Bitcoin ETFs

Recent Developments In SEC 

The latest information regarding the Securities and Exchange Commission is that while it is considering a rule change it may also allow Bitcoin ETFs to be listed on exchanges and a document posted on the SEC website claim the agency has begun the process to approve or disapprove a change in its rules allowing two Bitcoin ETFs to be listed on the NYSE Arca exchange.

Hereby the two ETFs are ProShares Bitcoin ETFs and Proshares Short Bitcoin ETFs as both proposed ETFs track Bitcoin futures contracts on the Cboe and the CME as the latter ETF that provides returns which is equal to the inverse of the daily performance of Bitcoin futures.

Thereby it is known that here the introduction of these Bitcoin ETFs could add further liquidity to Bitcoin markets by providing another venue for investors, institutional and individual exchanges that they track. Thereby a regulated Bitcoin ETF could help tamp down on the premiums and wild swings in prices by instituting controls and rules on their movement and requiring self-certification. 

The Bitcoin ETFs: A Long Road

Thereafter the possibility of Bitcoin-based ETFs has been first suggested by the Winklevoss twins who applied with regulatory agencies. While the application was rejected, the applications filed by other firms have met with a similar response, as the SEC has published a letter detailing the concerns. It is then that those concerns span as a broad range of issues from custody problems due to bitcoin’s digital provenance to arbitrage issues stemming from the absence of liquidity in Bitcoin markets.

It is found that the federal agency is not the only one worried about these issues as it noted that the Goldman Sachs has said Bitcoin was much better suited as a crypto commodity rather than a cryptocurrency with no large institutions operating across exchanges there is likely an insufficient scale of arbitrage.

Whereas this introduction of Bitcoin futures at Cboe and CME has provided momentum to the movement as proposals are in the new crop of ETFs aiming to track Bitcoin futures instead of prices at cryptocurrency exchanges as the recent proposal of Winklevoss twins had a recent proposal to create a self-regulatory organization for cryptocurrency exchanges that may also further allay the SEC’s concerns regarding unregulated exchanges. 

Has ICOs Made It Harder for Crypto ETFs to Pass SEC Muster

It is thereafter known that these exchange-traded funds, as well as the related products, are running into significant hurdles whereas the area has been characterized by unbridled growth with regulators and securities industry players have begun to push back on exotic ETFs. There is one potential reason for the shift which is that cryptocurrency space and questions of regulation relating to the initial coin offerings.

What Was The SEC Issued Letter In January

Later on, the head of investment management at the U.S. Securities and Exchange Commission (SEC) Dalia Blass, had issued a letter regarding Bitcoin linked ETFs revealing several questions that regulators have concerning cryptocurrencies reported by the Wall Street journal.

Currently, in the scenario, it is commonly observed as a major barrier to those cryptocurrencies being classified as fund products with the letter reportedly prompting the withdrawal of several applications for those Bitcoin ETFs as is seen in the Wall Street journal. 

Those Questions Facing Exotic ETFs

It is observed that exotic ETFs are including those related to Bitcoin and other digital currencies now expected to be able to answer a variety of questions posed by the SEC as these questions include the valuation method those ETFs would use to set daily net asset values were the types of steps that those funds might take to meet those daily redemptions and also those of the holding methods for those cryptocurrencies.

This is when Blass wrote that until those questions it can be addressed satisfactorily as we don’t believe that is appropriate for fund sponsors to initiate registration of funds intending to invest thereby substantially in the cryptocurrency and other related products as we have asked sponsors that have registration statements filed for such products to withdraw them. 

Is It An Easier Time For Traditional ETFs?

It is said that at the same time the exotic ETFs are facing new barriers, the SEC can also make the pathway to listing easier for traditional ETFs as the SEC chairman Jay Clayton reportedly considered streamline in the offering and listing of these funds while the financial crisis of 2008 reversed this pathway a decade ago.

It was then that even ETFs linked with sectors that may benefit from blockchain technology having seen snags where the SEC stopped four applicants’ use of Blockchain in their names.

The Final Thoughts

Later on, at the same time the market appetite for new products has dried up too as a result of compressed trading margins, new ETFs now tend to draw most of their funding thereby from those institutional investors much rather than traditional trading and brokerage firms which once assumed that liquidity would not be an issue.