Another Day, Another ETF Denial: SEC Rejects 9 Bitcoin ETF Proposals

Retail investors have long awaited a Bitcoin ETF to draw in an influx of new institutional capital. On Aug. 22, the SEC denied nine Bitcoin ETF proposals from ProShares and Direxion.

This article was co-authored by Avi Felman and Jonathan Kim.

Update: A previous version of this article stated that the SEC filed seven rejections. The actual number of rejections was nine.

Bitcoin ETF Approval Far from Here

The Securities and Exchange Commission (SEC) has filed nine rejections to Bitcoin exchange-traded fund (ETF) applications from ProShares and Direxion, according to two separate filings.

The orders were expected to be announced Aug. 23, which was the deadline for decisions. For previous ETF applications, the SEC delivered decisions in advance of the deadline, likely to avoid market speculation.

In both orders, the SEC cited failure to prevent manipulation and fraud as well as failure to prove Bitcoin markets are “markets of significant size” as reasons for rejection. This was similar to the reasoning provided by the SEC when they issued a denial of the Winklevoss ETF.

In the filing for ProShares, the SEC wrote:

“…the Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices. Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.’”

Both filings were nearly identical, using very similar wording to describe reasons for denial. The Direxion statement reads:

“…the Commission is disapproving this proposed rule change because, as discussed below, the Exchange has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices. Among other things, the Exchange has offered no record evidence to demonstrate that bitcoin futures markets are ‘markets of significant size.’”

These rejections were widely expected by the wider community, with most experts predicting a flat-out denial. ProShares withdrew the majority of their previous applications in January, indicating lack of confidence in their proposal. Although Bitcoin price took a quick dive, the price immediately rebounded to above previous levels.

While this marks the end of several more Bitcoin ETF applications, the VanEyck-CBOE Bitcoin ETF proposal is still under review until its decision on Sept. 30.