Rejection of Bitcoin spot ETF proposal showed regulators outlook

Bitcoin spot ETF proposal’s rejection by the United States Securities and Exchange Commission (SEC) has commenced a price reversal of BTC. Following such rejection the regulator’s outlook on crypto has been revealed. As the announcement of the US SEC showing green light to BTC future-based product spread, the cryptocurrency has been on an impressive rally. Moreover, amid the announcement BTC price hit a new all time high. However, as the financial regulator rejected VanEck’s spot based products proposal, the market sentiment soured.

Bitcoin spot ETF structure is the superior approach

Exchange-traded products are a security class that tracks an asset or basket of assets. Notably, ProShares’ BITO is the first Bitcoin ETF approved in the US after several years of rejection. However, although the regulators showed green signal to future-based products, it rejected VanEck’s application for a spot-based instrument. Following the rejection, Jan van Eck, the CEO of VanEck was not happy, and highlighted that they believe that investors should be able to gain BTC exposure through a regulated fund. Indeed, VanEck claimed that non-futures based products structure is the superior approach.

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However, it is notable that Gary Gensler, the SEC chair has previously voiced his support for Future-based crypto ETFs rather than price-based. Simultaneously, in the rejection application, the regulators underscored that the ETF failed to meet the requirement that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices. Hence, to safeguard investor’s funds and public interest, the SEC rejected the proposal.

Futures comprise more risk than spot

Many have deemed that while rejecting the Bitcoin spot ETF, the US regulator has unleashed a more risky product. Indeed, allowing Institutional Wall Street money to leverage BTC price movements is more risky than investing in the cryptocurrency. Such future contracts give the holder or buyer of the contract the obligation to purchase the underlying asset and the writer or seller of the contract gets an obligation to sell and deliver the asset at a specified price on a specified date unless the holder closes their position. 

Notably, such instruments are often used to hedge other positions in the investor’s portfolio. It is significant to note that such future contracts have nothing to do with the nature of the underlying product. 

According to Du Jun, the co-founder of Huobi Global, following the current scenario, futures ETFs might be the best choice accepted by the financial regulators, it is true that ETFs are often complex with a higher risk profile. Moreover, Jun believes that to begin with, regulators are yet to observe the process to set Bitcoin spot price. Hence, the US SEC believes that prices are vulnerable to manipulation in the crypto market.

Does SEC needs time to figure out spot-based products?

According to Jun, there are few characteristics of future-based products that satisfy the demand of US SEC. Indeed, such products unlinked to Bitcoin would offer investors better protection. Meanwhile, such products also offers an opportunity to go both long and short on the crypto asset. Thus, hedging Bitcoins rather than holding units with physically backed assets coule be abetter approach from SEC’s perspective.

However, not all participants are having similar positive outlook regarding the regulator’s approach. According to Marie Tatibouet, chief marketing officer of Gate.io, it took the regulators more than two couple of years to understand about future-based crypto products. Hence, the financial agency’s would probably need more two to three years to figure-out how Bitcoin spot ETF works.

Source: https://www.thecoinrepublic.com/2021/11/27/rejection-of-bitcoin-spot-etf-proposal-showed-regulators-outlook/


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