In mid-October 2021, the US Securities and Exchange Commission (SEC) approved the first American bitcoin-related exchange-traded fund (bitcoin ETF) from ProShares, and a few days later for VanEck and Valkyrie Investments.
The ProShares ETF has already begun trading on the New York Stock Exchange and on the first day, trading volumes in its shares reached almost $1 billion. Why are these SEC decisions so important for the crypto market, and what will they lead to?
SEC approves ProShares Bitcoin ETF
An Exchange Traded Fund (ETF) is an exchange-traded investment fund in which each share is tied to the price of an asset in the fund's portfolio.
In the case of the ProShares ETF, the fund's securities are tied to Bitcoin futures, which are traded on the Chicago Mercantile Exchange.
Cryptocurrency investors have been waiting for a positive decision from the SEC for quite a long time. After all, for several years now, several applications for approval of Bitcoin ETFs from different companies have been lying in the commission without any progress.
Now market participants hope that they will also be approved soon, and then funds from other companies - Galaxy Digital, AdvisorShares, Bitwise, BlockFi and ARK Investment Management - will enter the market.
SEC delays ruling on Bitcoin ETF until the end of September
The US Securities and Exchange Commission (SEC) has postponed its decision on VanEck and SolidX's Bitcoin ETF registration application until September.
In an order issued Aug. 7, an agency spokesman said the Commission needed more time to discuss approving a Bitcoin ETF, which could be the first exchange-traded product of its kind in the United States.
Such a decision can hardly be called unexpected. At least the Commission has not yet refused to register the ETF, as happened with previous similar applications. The agency stated:
“The Commission sets September 30, 2022, as the date on which the SEC will either approve or deny registration or begin the process of conclusive deliberation on whether to reject the proposed rule change.”
If successful, the CBOE's proposed rule change would be a critical step toward the listing of the Bitcoin ETF, which would be managed by a joint trust between VanEck and SolidX. ] submitted[/anchor] their proposal back in June. The application was actively discussed and received approval from the majority of representatives of the cryptocurrency community - the SEC reportedly received more than 100 comments on this proposal.
The decision to delay approval or reject the application came shortly after the Commission once again rejected the Winklevoss brothers' proposal to create a Bitcoin ETF. However, not everyone at the SEC agreed that the decision was the right one - SEC Commissioner Hester Peirce said the agency should not discourage innovation, and if an ETF is of interest to investors, then it should appear.
In addition, the delay in issuing a decision is not the first such step by the SEC. Last month, the Commission said it was also pushing back approval or rejection dates for five more ETFs to September.
The decision on changing the rules for listing ETFs on the CBOE was originally expected to be made this Friday. Despite the extensive work done on the application, Gabor Gurbacs, director of digital asset strategy at investment firm VanEck, declined to speculate on the Commission's decision. In an interview, he stated that he himself would like to know the answer to this question, but, unfortunately, he also remains in the dark.
Although many in the cryptocurrency community support this proposal, some believe that a Bitcoin ETF is not the best future for the industry. Earlier this month, Ethereum founder Vitalik Buterin said that “the Bitcoin ETF is getting too much attention.” In his opinion, the community needs to focus on developing retail solutions that will attract even more participants in the industry, increase the adoption of cryptocurrencies and make them a means of payment. Buterin argues that a Bitcoin ETF is better suited for price pumping purposes, while introducing small investment vehicles into the cryptocurrency market will accelerate the adoption and spread of cryptocurrencies.
Another delay in the Commission's decision negatively affected the price of Bitcoin, which, according to CoinMarketCap, fell by $500, losing 6.17% of its value over the past 24 hours.
Sharp rise
Against the background of the decisions of the American regulator, cryptocurrencies continued to grow. The capitalization of the cryptocurrency market, in the week since the approval of the first ETF, increased from $2.25 trillion to $2.5 trillion, because this means that digital assets are gradually gaining official recognition.
Dynamics of cryptocurrency market capitalization
Immediately after the publication of the SEC decision, the main cryptocurrency, Bitcoin, jumped in price above $63,000 for the first time since April 2022. At the same time, the market capitalization of Bitcoin is already more than $1.2 trillion.
Bitcoin dynamics in October 2022
Following Bitcoin, other cryptocurrencies also showed growth. For example, Ethereum is already worth almost $4,000 with a capitalization of $450 billion, and XRP is more than $1 with a capitalization of $51 billion.
Bitcoin ETF problems in the new year
Cboe, a Chicago options exchange, was eager to get approval for a Bitcoin ETF on September 30th. However, the SEC commission was prolonging this issue until the new year. As a result, the Chicago exchange withdrew its request in early January. However, at the end of the month she submitted a new application.
The application is dated January 30. But, like last time, no one knows when the SEC will allow Bitcoin ETFs. And will this miracle happen at least before the middle of the year? The deadline for the Chicago exchange's previous statement was supposed to be February 27. The reporting of the new application began only recently.
By law, a Bitcoin ETF decision can take up to 240 days. Judging by the current situation, it may well take exactly that amount of time. Although there are slightly different opinions on this matter. TeleTrade financial consultant Zhanna Kulakova believes that exchange-traded funds of this kind should appear as early as August 2022.
My good friend, American lawyer, Jake Chervinsky hopes for a favorable resolution of the problem this spring. The idea that Bitcoin ETFs will soon be approved is also supported by many traders. Perhaps they are simply inspired by the thought of an influx of institutional players after the launch of such derivatives.
The SEC's decision on the ETF fund is eagerly awaited by many investors, stock market players, and traders of various sizes. However, the Securities and Exchange Commission is openly slowing down the entire process. She explains her reluctance to give the green light to the Bitcoin ETF on September 30 or any other date as follows.
First of all, cryptocurrency trading itself is an unsafe and often illegal procedure. To legalize these processes, a number of rules should be developed. Such rules must guarantee the safety of all participants in the process. At the moment, this factor is up in the air.
Therefore, SEC representatives will approve ETFs only when the security conditions for trading operations are fully met.
Where it leads?
The SEC's decision became a landmark for the entire crypto market. In fact, it may mean that other barriers may soon be removed, and cryptocurrencies will change their semi-legal status to a more official one and will receive recognition from the authorities of many countries.
This may cause rapid growth in both the overall capitalization of the cryptocurrency market and the value of individual digital assets.
Author
: Dmitry Noskov – expert of the StormGain crypto exchange (platform for trading, exchanging and storing cryptocurrency)
Solution in 2022?
The SEC's final decision may be delayed to February 2019. Two legal transfers of the decision are allowed: one - 6 months and one - final 3 months. Requesting additional comments, even with 1,300 reviews, indicates the regulator's doubts. At the same time, the decision on the previously rejected nine ETF applications will be reviewed, but the timing of the review is not indicated anywhere.
Currently, a paradoxical situation has developed. The SEC's negative attitude may change with the entry of institutional players into the market, who will come to the market only after the recognition of Bitcoin ETFs.
In addition, other major players are planning to enter the ETF market. The world's largest asset manager, BlackRock, and the Coinbase exchange announced in early September that they were in talks to develop a cryptocurrency ETF.
Is compromise good?
This compromise between the SEC and the market regarding Bitcoin investments has its own risks - due to the increase in the volume of Bitcoin futures issued, their volatility will increase, former ProShares top manager Ben Fulton wrote in a column for etf.com. The problem is that the number of futures contracts is not limited by the number of bitcoins. Investors bet on price movements and at one point demand will exceed supply.
Material on the topic
ProShares itself warns investors about this in its prospectus: any restriction on the ability to buy Bitcoin futures is a likely loss for the fund. The Fund may lose income due to lack of liquidity in the Bitcoin futures market, market disruptions or other reasons. In addition, long futures typically cost more than short ones. But the funds do not exercise the contracts when they mature, but sell them and buy a new one at a higher price. Thus, the fund loses the difference.
SEC and Gensler worry about investors
Cryptocurrency ETFs can be a big boost to the market by providing access to assets without directly investing in them. There are a large number of retail investors who are hesitant to buy cryptocurrencies because they do not have sufficient technical knowledge required to trade wisely. Exchanges and financial institutions are trying to make it easier to buy cryptocurrency, but for many the process remains unclear.
But Gensler and others worry that a volatile market could negatively impact investors, and the market is also potentially vulnerable to manipulation. The SEC Chairman, in particular, reaffirmed the importance of investor protection and redoubled efforts to regulate the crypto market.
The states are already ready to introduce market regulation, which will put an end to all doubts. Apparently, stablecoins are a key issue in cryptocurrency regulation, and the US Treasury Department is leading an investigation into the matter.
The SEC's move to oversee cryptocurrencies has led to a number of high-profile cases, most notably its lawsuit against Ripple. Also in September 2022, the SEC announced the launch of an investigation against Uniswap.
