SEC Denies Ark 21Shares’ Application for a Bitcoin Spot ETF
Following a round of denials, a new regulatory modification might result in the approval of spot ETFs by mid-2023.
Ark 21Shares is a joint venture between Wall Street giant Cathie Wood’s Ark Investment Management and investment company 21Shares, who last July jointly submitted an application to establish the product on behalf of Cboe BZX Exchange.
“The Commission concludes that BZX has failed to meet its burden under the Exchange Act and the Commission’s Rules of Practice of demonstrating that its proposal complies with the requirements of Exchange Act Section 6(b)(5), particularly the requirement that national securities exchange rules be ‘designed to prevent fraudulent and manipulative acts and practices and ‘to protect investors and the public interest,'” the SEC stated in a decision statement.
The application has been postponed many times, with the most recent postponement occurring in January 2022.
Why is there no spot ETF?
Spot ETFs immediately monitor the price of bitcoin without needing investors to possess the asset at the time of purchase. ETFs are regulated under the 1933 Securities Act, which requires the filing of Form 19B-4 demonstrating how the underlying market is resistant to exploitation.
SEC Chairman Gary Gensler has already stated his firm preference for a bitcoin futures ETF over a straight tracker of the commodity. A futures exchange-traded fund (ETF) is one that buys or sells a contract reflecting the future value of an asset.
The contract involves an agreement to purchase or sell bitcoin at a future date, shielding investors from cryptocurrency’s inherent volatility. If individuals anticipate that bitcoin’s price will rise, the futures contract will be costly. The futures market is supervised by the 1940 Investment Company Act and is thus exempt from the need to file Form 19B-4.
While some are frustrated by SEC denials, there is optimism
Multiple spot ETFs have been rejected by the Securities and Exchange Commission, including those from WisdomTree, One River Asset Management, VanEck, NYDIG, and Fidelity. However, according to Bloomberg Intelligence, a planned SEC regulation change aimed at redefining exchanges might result in the approval of certain ETFs by mid-2023.
“Once crypto exchanges become compliant, the SEC’s principal justification for refusing spot bitcoin ETFs becomes invalid, paving the road for approval,” James Seyffart and Eric Balchunas wrote on March 24, 2022. Gensler’s reluctance to approve spot ETFs is directly tied to the industry’s concern over which agency would supervise various sectors, including exchanges.
However, some key industry players are becoming impatient, with Grayscale’s CEO Michael Sonnenshein stating that his business is contemplating filing a lawsuit if the SEC rejects their application for a bitcoin ETF.
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