SEC’s long-awaited decision on Bitwise BTC ETF (denial) cites market insufficiency

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BTC ETF

Many of the most passionate Bitcoin proponents had been waiting for a decision by the U.S. Securities and Exchange Commission for many months. Yesterday, the commission ruled to deny an application by Bitwise for a Bitcoin ETF (exchange traded fund) which would’ve been the first of its kind in U.S. markets and is widely considered to be a game-changer for BTC market activity.

The disappointing outcome has Bitwise scrambling to re-apply.

Meanwhile, let’s look at what the SEC said:

First of all, the legal document shows that the New York Stock Exchange party Arca Inc. filed the application in January, which means it took the better part of the year for the SEC to weigh in.

Here’s a telling extract from the decision:

“The commission found, in the Winklevoss order and in orders considering Bitcoin-based trust issued receipts, that if the listing exchange for an ETP fails to establish that the underlying commodity market is inherently resistant to fraud and manipulation, or that other means to prevent fraudulent and manipulative acts and practices will be sufficient, the listing exchange must enter into a surveillance-sharing agreement with a regulated market of significant size relating to the underlying or reference assets since ‘such agreements provide a necessary deterrent to manipulation because they facilitate the ability availability of information needed to fully investigate a manipulation if it were to occur…’”

Subsequently, the SEC lays out Bitwise’s argument that the “real” bitcoin spot market constitutes this type of market eligible for the surveillance-sharing agreement:

“The sponsor would base its pricing mechanism for the proposed ETP on this purportedly ‘real’ segment of the market, and the sponsors analyses and comments focus solely on this segment of the market when asserting that the underlying Bitcoin market is uniquely resistant to manipulation… 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 6B5 and therefore, the commission disapproves this proposed rule change.”

There’s a lot more in the document, but boiling down this extremely long missive to its finer points, we see that the commission basically doesn’t recognize Bitwise’s secondary market proposal as sufficient for its purposes.

How will Bitwise address that? We’ll see….

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