Global investment firm VanEck—with over $65 billion in assets—is told to wait another 45 days as the SEC delays another application by VanEck for a Bitcoin spot exchange-traded fund (“ETF”). The SEC’s delay in making a decision is a great disappointment to spot ETF enthusiasts.
Bitcoin ETFs—A Primer
An ETF—at its core—is an investment tool where investors can purchase shares that represent the underlying asset. VanEck’s Bitcoin spot ETF would allow investors to buy shares of Bitcoin without actually owning it and getting a crypto wallet. Instead, VanEck would hold the Bitcoin. The benefit of this arrangement is that investors would be exposed to Bitcoin without the ownership and storage responsibilities.
The Long (and Unfinished) Road to a Successful Spot ETF Application
In 2017, VanEck made its first attempt by filing its application with the SEC in what would be the first ever Bitcoin spot ETF in the United States. Unfortunately, its first application was denied.
It took VanEck about four years to submit another application to the SEC. If approved, the Cboe BZX Exchange would list and trade VanEck’s product. However, its second application was also denied. The reasons for this denial seemed procedural. The SEC had determined that VanEck failed to meet the minimum threshold requirements “to protect investors as well as prevent fraudulent and manipulative acts and practices.” Specifically, in its 2021 decision, the SEC reasoned,
It is essential for an exchange listing a derivative securities product to enter into a surveillance-sharing agreement with markets trading the underlying assets for the listing exchange to have the ability to obtain information necessary to detect, investigate, and deter fraud and market manipulation, as well as violations of exchange rules and applicable federal securities laws and rules.
The third time wasn’t the charm for VanEck—at least not yet. In June 2022, VanEck filed its third application with the SEC. To boost its chances of success, VanEck provided several reasons why the SEC should approve its application, and its previous denials should be reconsidered.
The Details of VanEck’s Third Application
One of VanEck’s primary arguments in support of its application focused on the fact that American funds gain exposure through Bitcoin spot exchange-traded products in Canada—Canada, which already approved its own Bitcoin EFT in February 2021.
VanEck also argued that approving its application would give ETFs in the United States access to the U.S. listed, regulated products “rather than relying on either flawed products or products listed and primarily regulated in other countries.”
Whether to approve or deny VanEck’s application was due on August 27, 2022. Instead of issuing a decision, the SEC decided to postpone the matter by about two months. In addition to noting that they received no comments on its proposed rule change since asking for feedback, the SEC gave the following response to justify the delay:
The Commission finds that it is appropriate to designate a more extended period to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change and the issues raised therein.
What’s Next?
While VanEck’s spot ETF may be out of luck, ETFs, in general, does seem to be gaining traction. The SEC has even confirmed this proposition. For instance, VanEck launched a Bitcoin futures ETF in October 2021 along with ProShares.
We cannot predict how long it will take before the United States witnesses a successful, SEC-approved spot ETF. Still, additional efforts by other companies and more regulation may plant the seeds to bring this dream into existence.
Conclusion
The United States must wait a little longer to see if a Bitcoin spot ETF will be approved. VanEck’s arguments did little to quell the concerns of the SEC, who seem intently focused on the possible market manipulation issues and lack of investor protection. Around October 11, the SEC is set to—hopefully—announce its decision about whether to approve VanEck’s third application.
