Home Archive Biting the Dust: Bitcoin ETF Applications Forced to Withdraw Under SEC Scrutiny

Biting the Dust: Bitcoin ETF Applications Forced to Withdraw Under SEC Scrutiny

Josiah Wilmoth
Last Updated March 4, 2021 5:03 PM
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Several exchange-traded fund (ETF) providers have withdrawn their bitcoin ETF applications at the request of the US Securities and Exchange Commission (SEC).

Since the launch of bitcoin futures contracts on regulated US exchanges CBOE and CME, a myriad of fund providers have tossed their hats into the ring in a bid to bring the first bitcoin ETF to market by creating funds that would trade bitcoin futures rather than the underlying asset itself.

This group included Direxion Shares ETF Trust, a firm that desired to create leveraged bitcoin funds that would multiply bitcoin’s price movements. Direxion withdrew its application  on Jan. 8, citing the SEC’s concern over the liquidity of the futures markets.

“On a call with the Staff on January 5, 2018, the Staff expressed concerns regarding the liquidity and valuation of the underlying instruments in which the Fund intends to primarily invest and requested that the Trust withdraw the Amendment until such time as these concerns are resolved. In response to the Staff’s request, the Trust respectfully requests withdrawal of the Amendment,” Direxion’s Angela Brickl wrote in the firm’s withdrawal letter.

The SEC’s stance toward Direxion’s proposed funds is not entirely surprising. The funds were roundly criticized by mainstream analysts for aiming to introduce heightened risk into markets that are already incredibly volatile.

However, a litany of other fund providers have withdrawn their bitcoin ETF applications as well. VanEck, First Trust Advisors, Exchange Listed Funds Trust (ELF), and ProShares Trust have all filed letters requesting to have their applications withdrawn. None of these firms intended to exercise leverage through their proposed funds, although several sought to offer inverse ETFs, which are designed to return the opposite of the index and are generally considered to be riskier than long ETFs.

ProShares’ withdrawal is notable given that the New York Stock Exchange (NYSE) had sought to list its bitcoin funds on its Arca trading platform. The NYSE had also filed to list Direxion’s leveraged bitcoin ETFs.

The withdrawals of ELF and First Trust, meanwhile, are significant because the SEC had asked for public comment  on CBOE’s proposed rule change that would have allowed the exchange to list these funds and exempt them from certain market manipulation regulations.

This is not the first time that fund providers have withdrawn bitcoin ETF applications under SEC pressure, but many analysts predicted that the launch of bitcoin futures would quickly lead to regulatory approval for these products.

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