The SEC rejected investment firm VanEck’s proposal for a spot bitcoin exchange-traded fund (ETF) on Friday.
The decision was widely expected as SEC chair Gary Gensler has indicated his preference for a bitcoin futures ETF over a spot bitcoin ETF several times in the past.
The SEC has delayed a decision on the application twice before.
Key regulators, particularly Gensler, have indicated they are reluctant to expand crypto offerings, particularly a “spot” bitcoin ETF, unless there is legislation clearly defining which regulatory agencies have control over the various crypto spaces, such as crypto exchanges.
“I think pessimism about a bitcoin ETF should extend into 2022 and beyond,” Mark Palmer, an analyst who covers the fintech and digital assets space for BTIG told me.
“Gensler has made it clear that a bitcoin ETF would have no regulated entity backing it up,” Palmer said. “I don’t think the market has fully grasped that fact.”
“We need more clarity around the crypto space,” he said. “There is a hope Congress will provide clarity, but we think that is highly unlikely. The other is a jurisdictional question, whether it should be regulated by the SEC or the [Commodity Futures Trading Commission].”
While bitcoin is a commodity and thus under the control of the CFTC, a bitcoin ETF is a security that would come under the jurisdiction of the SEC. Palmer believes Gensler is unlikely to make any moves without clear regulatory authority over other parts of the crypto ecosystem, such as exchanges.
“Gensler’s authority is unclear and he will be constrained until he gets greater clarity,” Palmer said.
Bottom line: It could be a long wait for a bitcoin ETF.
Two bitcoin futures ETFs, the ProShares Bitcoin Strategy ETF (BITO) and the Valkyrie Bitcoin Strategy ETF (BTF), began trading last month, leading to a significant rally in the price of bitcoin.
This is a developing story. Keep checking back for updates.