Bitwise’s bitcoin ETF, the last hope, has been denied

As reported by The Block, “Sorry, bitcoin ETF hopefuls. The final application for an exchange-traded fund tied to the cryptocurrency has been denied by the Securities and Exchange Commission, according to a document on the agency’s website.

“Bitwise’s Bitcoin ETF Trust would have tracked the spot price for bitcoin had it been approved. It was originally filed with the agency on Jan. 28, and in March the commission granted a longer period to consider the new product. The denial of the fund follows the rejection of VanEck’s similar bitcoin ETF last month.

“Companies, including the likes of Winklevoss Capital and Realty Shares, have tried to get an ETF tied to the crypto market off the ground, but regulators have pushed back because of concerns about manipulation. Bitwise has tried to mollify the agency’s concerns by pointing out the marketplaces in crypto with legitimate volumes, but the SEC said the firm doesn’t explain how legitimate exchanges are isolated from exchanges cooking their order books.

“‘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,’ the agency wrote in its more than 100-page rejection letter.

“The agency also pushed back on some of Bitwise’s claims in its proposal, including that bitcoin’s ‘unique properties’ — fungibility, transportability, an exchange-tradability —make it less susceptible to manipulation. It also outlines and dissects the various claims made by Bitwise in its own research submitted to the Securities and Exchange Commission about the robustness of trading on venues that don’t fake volumes, which was released in March.

“‘The Commission concludes that claims by the Sponsor and a commenter that the ‘real’ spot bitcoin market is organized, efficient, resilient, or robust, or has tight spreads, do not suffice to distinguish the proposed ETP from other derivative securities products, such as equity options, where the Commission required surveillance-sharing agreements with a significant, regulated market even though effective arbitrage exists among the relevant markets,’ the agency said.

“And herein lies something key that is missing: market surveillance-sharing agreements. In other words, cooperation on monitoring markets for suspicious and illegal trading behavior between the largest cryptocurrency exchange venues and the venues on which an ETF product would trade.”

Continue to read the full story at The Block.

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