SEC Rejects VanEck’s Proposed Spot Bitcoin ETF

Agency’s ruling to deny the physically backed product not a surprise to many industry watchers.

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key takeaways

key takeaways

  • Fund manager VanEck filed for its bitcoin trust in December 2020, and the SEC had previously delayed making a decision on the product
  • The SEC is “extremely unlikely” to approve a spot bitcoin ETF in 2021, according to CFRA’s head of ETF and mutual fund research

The SEC has denied fund manager VanEck’s proposal for a spot bitcoin ETF, according to a disclosure published on Friday. The agency made its ruling two days before the agency’s 240-day review period was set to expire on November 14. 

“We are obviously disappointed in today’s update from the SEC declining approval of our physical bitcoin ETF,” VanEck CEO Jan van Eck told Blockworks in an email. “We continue to believe that investors should have the ability to gain exposure to bitcoin through a regulated investment product, and that a non-futures ETF structure is the superior approach.”

The SEC noted in its letter that the Cboe BZX Exchange, on which the ETF’s shares would have traded, “has not met its burden” that the proposal meets the requirements of the Securities Exchange Act of 1934. A specific section of the law requires that the rules of a national securities exchange be “designed to prevent fraudulent and manipulative acts and practices” as well as “to protect investors and the public interest,” the SEC letter notes. 

The New York-based fund group filed for its bitcoin trust, which would have invested directly in bitcoin, on December 30 of last year. A dozen or so other similar products sat alongside the VanEck fund in registration.

As other spot bitcoin ETFs await approval, the SEC allowed ProShares to launch a bitcoin futures ETF on October 19, and a similar fund by Valkyrie came to market three days later. Futures-based bitcoin offerings from VanEck and Global X are also expected to launch. 

Though the ProShares Bitcoin Strategy ETF (BITO) has grown to nearly $1.3 billion in assets under management, some industry watchers have said they expect investor demand for a spot bitcoin product to be much higher.

A flood of filings for futures-based bitcoin ETFs came in August after SEC Chairman Gary Gensler implied during a virtual forum in August that the agency would favor ETFs filed under the Investment Company Act of 1940, which are limited to CME-traded bitcoin futures contracts. 

The SEC’s ruling on the VanEck ETF was not unexpected, according to Lara Crigger, managing editor at ETF Trends.

“Commissioner Gensler and others at the SEC have made it clear that bitcoin futures are their preferred instrument, as futures contracts are a known quantity that already has a well-established regulatory process and framework, and they already have the necessary investor protections against fraud and manipulation baked in,” Crigger told Blockworks. “Spot bitcoin doesn’t have any of that.”

The SEC last week moved back the deadline to make a decision on the proposed Valkyrie Bitcoin Fund by 60 days — from November 8 to January 7, 2022. Valkyrie Funds CEO Leah Wald told Blockworks in an email that the delay was not surprising and was in line with interactions the firm has had with the SEC. 

“We believe this a positive step because it means the agency is taking the time to deliberate and wholly consider the merits of such a product coming to the market,” she said at the time.

But the SEC, which had previously delayed its decision on VanEck’s proposal, had reached the end of its 240-day review period and was forced to approve or deny the product by November 14. 

The SEC’s rejection of VanEck’s proposed bitcoin ETF did not come as a surprise to various other industry watchers.

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The SEC is “extremely unlikely” to approve a spot bitcoin ETF in 2021, Todd Rosenbluth, head of ETF and mutual fund research at CFRA, predicted just before the decision was reached. 

“The SEC continues to have concerns about fraud related to the cryptocurrency that are unlikely to be alleviated in the near term,” he told Blockworks. “I don’t have a forecast to when that will change.” 

James Seyffart, an ETF analyst for Bloomberg Intelligence, wrote in a Twitter post on Monday that though he believed the SEC should approve the proposed VanEck offering, he expected the agency to deny it.

“But, the denial letter should give us insight into [the] SEC’s current views/opinions on [the] underlying bitcoin market,” he added. 

BlockFi and Neuberger Berman became the latest issuers looking to launch a bitcoin ETF. Bitwise Asset Management also recently filed to launch the Bitwise Bitcoin ETP Trust, and the fund group published roughly 150 pages of data-driven research with the filing that sought to address SEC concerns.

The firm published the research to put it on the record and have the SEC respond to it, said Bitwise CIO Matthew Hougan said, adding that the agency’s response to the findings could move the industry forward.

Bloomberg Intelligence ETF Analyst Eric Balchunas said during a recent Blockworks podcast that he would estimate December 2022 as his “over-under” for a spot bitcoin ETF approval. Wald, who joined Balchunas on the podcast, noted that she believed it would be sooner.  

Kevin O’Leary, an entrepreneur and venture capitalist known widely outside the financial world for his appearances on ABC’s Shark Tank, told Blockworks in August that he doesn’t think the SEC will approve a bitcoin ETF in the US until at least 2023. 

“I have no more information than anybody else — but I’ve listened to the regulator trying to read the tea leaves,” O’Leary said at the time. “I think they’re going to go slowly into this.”


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