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SEC rejects bitcoin spot-price ETF again, chastises Cboe

By Kevin Donovan

19:49, 27 January 2022

The SEC is not buying what Cboe is selling - Photo: Shutterstock

The US Securities and Exchange Commission (SEC) has once again rejected a bid to approve a bitcoin spot-price indexed exchange-traded fund, the SEC announced on Thursday.

And as was the case with the previous rejections, the SEC cited the lack of a surveillance-sharing agreement with markets trading the underlying assets, specifically the Chicago Board of Exchange (Cboe), something the securities regulator has said repeatedly was a condition of any approvals.

The most recent failed application was from Fidelity Investments, which first registered its Wise Origin Bitcoin Trust to trade on the NYSE Arca exchange last March.

US House Rep. Tom EmmerUS House Rep. Tom Emmer is a bitcoin proponent - Photo: Twitter

The Trust provides investors with the opportunity to access the market for bitcoin through a traditional brokerage account without the potential barriers to entry or risks involved with holding or transferring bitcoin directly, acquiring it from a bitcoin spot market, or mining it,” Fidelity said in the registration statement filed with the SEC.

The fund tracks Fidelity’s Bitcoin Index PR, using bitcoin spot price data from eligible bitcoin spot markets to calculate a volume-weighted median price.

“Another day, another baseless rejection of a Bitcoin ETF,” tweeted US House Representative Tom Emmer, a vocal bitcoin advocate.

Bitcoin vs USD 10/27/21-01/27/22Bitcoin vs USD 10/27/21-01/27/22 - Photo: Koyfin

Is bitcoin security or commodity?

At issue for the SEC is the interpretation of the Securities and Exchange Act of 1933 and the Investment Company Act of 1940 differentiating the types of investments asset managers can hold. Specifically, the SEC views futures as non-securities assets allowed under the 1940 Act, while it does not consider bitcoin a non-security asset under the 1933 Act.

As such, the SEC views the underlying spot-price bitcoin market as being more susceptible to fraud and manipulation, something asset managers and Cboe are collectively trying to work around.

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The SEC has approved BTC futures-Indexed ETFsThe SEC has approved BTC futures-Indexed ETFs - Photo:Koyfin

SEC isn’t buying what Cboe is selling

“(Cboe) believes that the proposal would give US investors access to bitcoin in a regulated and transparent exchange-traded vehicle that would act to limit risk to US investors,” the SEC said in its letter to Fidelity.

“The proposed listing and trading of the shares would mitigate risk by: reducing premium and discount volatility; reducing management fees through meaningful competition; reducing certain risks associated with investing in operating companies that are proxies for bitcoin exposure; and providing an alternative to custodying spot bitcoin.”


0.13 Price
-2.890% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872


176.19 Price
+0.730% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.2652


67,147.75 Price
-0.450% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00


0.59 Price
-1.240% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

The SEC rejects this argument, adding the Cboe “has not established that other means to prevent fraudulent and manipulative acts and practices are sufficient to justify dispensing with the requisite surveillance-sharing agreement.”

Further, the SEC chastised the Cboe for doing the same thing repeatedly and expecting a different result.

“(Cboe) repeats various assertions made in prior bitcoin-based… proposals that the Commission has previously addressed and rejected,” the SEC stated. “And more importantly, (Cboe) does not respond to the Commission’s reasons for rejecting those assertions but merely repeats them.”

Grayscale BTC Indexed fund is pending SEC approvalGrayscale Bitcoin Trust is pending SEC approval - Photo: OTCQX

Bitcoin ETF pipeline

Fidelity is not the first fund manager to get the Dikembe Mutombo finger wag from SEC chair Gary Gensler, and there remain numerous spot-price indexed bitcoin ETFs approved by the SEC. There’s a growing line of digital asset fund managers knocking on the SEC’s door for spot-price bitcoin ETF approval.

Ark Invest in partnership with 21Shares, Bitwise and Grayscale Investment are just a few who have petitioned the SEC for approval to list spot-price ETFs.

Notably, ProShares Trust Bitcoin Strategy ETF became the first bitcoin futures-indexed ETF last October, followed shortly thereafter by Valkyrie Bitcoin Strategy ETF.

While performance data is limited, the two SEC-approved bitcoin futures-indexed ETFs have traded virtually in tandem with each other, and in turn, with the underlying bitcoin spot-price market.

Additionally, Invesco has two SEC-approved ETFs which, while not directly indexed to either futures or spot prices, track stocks heavily involved with cryptocurrency in general. Invesco’s BLCK and SATO ETFs are heavily allocated in cryptocurrency-focussed information technology companies, such as miners and blockchain technology.

Invesco crypto focused ETFsInvesco crypto focussed ETFs - Koyfin

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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