The Bitwise proposal for a bitcoin exchange-traded fund (ETF) was recently knocked to the side by the Securities and Exchange Commission (SEC). This was bad news all by itself, but many analysts are seeing the rejection as a sign of how the industry will wind up.
Bitwise Rejection Means a Lot to Analysts
Some view this not as just a simple rejection, but as a permanent barricade to blockchain and crypto-based products. They expect that a bitcoin ETF will have a very hard time getting approval in the coming years, and that this is one wall that’s not likely to be knocked down anytime soon.
The SEC has commented that it wasn’t ready to allow a bitcoin ETF at this time due to concerns about “fraud and manipulation.” The bitcoin price remains very vulnerable to volatility, and the security of the cryptocurrency space, according to SEC standards, isn’t strong enough to warrant further tradeable products.
Todd Rosenbluth, senior director of ETF and mutual fund research at CRFA, believes that this is going to be the first of many rejections and that an ETF might have no chance. He states:
It’s not the ETF product that’s the concern. It’s the underlying asset that the SEC is worried about from a fraud standpoint. They don’t want to pull off that Band-Aid too quickly… I don’t think we’re going to see a bitcoin ETF anytime soon because it’s hard for an asset manager like Bitwise and others to be able to disprove a negative.
It was long thought by many that the company that had the biggest chance of having their ETF proposal accepted by the SEC was the joint venture Van Eck and Solid X, which had been working together since early 2017 to get a bitcoin ETF application examined appropriately.
The company got their first rejection in March of that year, and another rejection had to follow until 2018 came along, when the SEC published the proposal for public comment as a means of deciphering how traders might view the product.
Following positive feedback, the SEC ultimately said it would decide in August of 2018, but this was followed by several delays that lasted well into 2019. Things ended rather abruptly when the company decided to pull the plug on its own proposal last September, leaving Bitwise as enthusiasts’ main hope. Obviously, things didn’t go so well in that department.
What Can Companies Do to Change Things?
Chris Hempstead of Deutsche Bank says that if companies want to see a bitcoin ETF get approved, they need to do all they can to enhance “safe practices” in the trading space. He comments:
Grayscale has a bitcoin fund out there that is very successful… Use that as your proof of evidence with the commission to say, ‘This can work if the asset is held in a safe place.’