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SEC Rejects 9 Bitcoin ETFs: Any Hopes Ahead?

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The bitcoin market has been through a rough patch lately due tothe Securities and Exchange Commission’s (SEC) repeated rejections for ETFs past month. In late July, the authority forbade an application by the Winklevoss brothers to come up with a bitcoin ETF, finding the product not safe enough for investors.

This was followed by a deferment in decision for VanEck-SolidX’s proposed product in early August and rejections of nine other proposals from three different issuers on Aug 22. The latest rejection pertained to two ETFs filed by ProShares that would track bitcoin futures contracts, one from GraniteShares, and five leveraged and inverse ETFs from Direxion. Thanks to stringencies by regulatory authorities, bitcoin prices fell more than 20% since late the SEC rejected Winklevoss brothers’ offering (read: Bitcoin Falls After SEC Postpones ETF Decision).

SEC to Reconsider its Verdict

Per an article published on Reuters, the SEC released letters mentioning its intention to reassess the verdict of declining nine applications for various Bitcoin ETFs, soon after rejecting. However, the letters do not clarify the timeline for the decision.

What Are the Hurdles?

SEC is worried about its extreme price volatility in cryptocurrencies and liquidity in bitcoin-related funds. Per Reuters, the virtual currency can be deployed to quickly move money anywhere in the world without any central authority intervention, such as a bank or government. A fund holding the currency could draw more investors and materially boost its price.

Since the current U.S. bitcoin futures markets is small and new (having been hit only in December 2017), it is yet to be better regulated. So, gaining full-fledged data about trading as well as information about traders' identities seem difficult at this point of time, per an article published on etf.com.

Several central banks issued warnings against it. South Korea, which makes up about 20% of global bitcoin trading, plans to eliminate crypto exchanges from the list of entities qualified for SME (small and medium-sized enterprises) tax deduction as “ the business lacks the effect of creating added value.” The revised tax law, if passed, will be enacted next year.

What Are in the Pipeline?

There is an ETF that intends to track a basket of cryptocurrencies and was filed in July by Bitwise, and the VanEck SolidX Bitcoin Trust are now waiting for the SEC’s decision. Bitwise’s product is the first to propose tracking several cryptocurrencies, not just bitcoin. The VanEck ETF (XBTC) will get a verdict by Sep 30. There are a few factors that seem positive about the formation of XBTC. First, the underlying currencies will be insured, which would make it insulated against any kind of a hacking attack. Secondly, the issuers purposely kept retail investors far from the proposed fund, which reduces the broad-based risk factor associated with this kind of a product (read: Will the SEC Finally Approve Bitcoin ETFs?).

ETF Impact

Apart from repeated SEC denials that are hurting bitcoin prices, Nvidia’s (NVDA - Free Report) declaration that cryptocurrency-fueled demand had dried out probably took a toll on the cryptocurrency space. Investors should note that mining of cryptocurrencies requires the usage of semiconductors (read: Is Fading Crypto Demand At All a Threat to Semiconductor ETFs?).

So, during the issuers’ struggle for bitcoin ETFs, a look at semiconductor ETFs like Semiconductor Vaneck Vectors ETF (SMH - Free Report) and Invesco Dynamic Semiconductors Portfolio (PSI - Free Report) is warranted.

Plus, investors have blockchain ETFs at their disposal. As per a source, “the blockchain in Bitcoin literally acts a ledger; it keeps track of the balances for all users and updates them as money changes hands.”

So, if investors are not getting a bitcoin ETF now, they can definitely be in touch with the concept through blockchain ETFs like Reality Shares Nasdaq NexGen Economy ETF (BLCN - Free Report) , Amplify Transformational Data Sharing ETF (BLOK - Free Report) and First Trust Indxx Innovative Transaction & Process ETF (LEGR - Free Report) . 

 

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