US SEC Expectedly Rejects Bitwise ETF Proposal

Despite the confidence of Bitwise that this time, the US regulator would approve the fund, once again a Bitcoin (BTC) ETF is delayed.

The US Securities and Exchange Commission once again proved it is highly reluctant to allow the launch of a Bitcoin (BTC) exchange-traded fund (ETF). The proposal by Bitwise Asset Management was once again reviewed and rejected.

The SEC once again rejected the proposal, on the grounds that Bitwise and its partner NYSE Arca failed to explain the potential to protect the ETF investors from market manipulation affecting BTC spot prices.

The ETP proposal hinged on claims by Bitwise that BTC had a highly regulated spot market for dollars, where real volumes and price discovery happened. However, Bitwise also noted that up to 95% of BTC trading may be faked, and failed to offer a remedy. The SEC also suspected that an entity could manipulate both the ETF price and spot markets.

“Because, among other things, the Sponsor has asserted that 95% of the bitcoin spot market consists of fake and non-economic activity, but has not established that it has in fact identified the “real” bitcoin market, or that the “real” bitcoin market is isolated from the fraudulent and manipulative activity, we find, in each case, that NYSE Arca has not met its burden to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and therefore the Commission disapproves this proposed rule change,” stated the SEC.

The latest exploratory period for the Bitwise fund extended from August 12 onward, once again sparking some hopes that a fund launch would be possible. During that time, the Bakkt exchange received the green light to offer BTC futures with delivery settlement. Cash-settled futures for BTC are also highly active.

However, an ETF would reach a much wider audience, potentially creating risks for personal finance. An ETF is also directly responsive to the underlying asset price, exposing buyers to BTC volatility. For BTC, it is not unusual to note a price swing of above $1,000 per day.

The BTC market price was unaffected by the news of the rejection, which was mostly predictable. BTC traded at $8,531.19 on Thursday, after recovering to above $8,600.

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