The U.S Securities and Exchange Commission rejected the Bitcoin ETF application filed by the Winklevoss brothers on July 26, by publishing a release. While the price of Bitcoin plummeted soon after the news as the investors took it negatively, it jumped back up again in 24 hours. The Bitcoin ETFs are not only proposed by Winklevoss brothers but other players in the market as well and are eagerly awaiting an approval from the SEC. SEC is said to review these proposals as soon as September this year.

Defining an Exchange Traded Fund (ETF)

ETFs or Exchange Traded Funds are marketable securities that track a collection of assets, a commodity, a bond or an index, just like index funds. The diversification of assets that it tracks are represented proportionally in the shares of the fund. Though ETFs are considered passive investment tools just like mutual funds, they are quite different. They behave like other stocks and experience price changes throughout the day. Thus, unlike mutual funds, ETFs can be traded any time during the day.

Just as ETFs track assets, commodities, indexes or bonds, Bitcoin ETFs are designed to track Bitcoin. This gives the investors an opportunity to indirectly invest in Bitcoin without having to own a Bitcoin wallet. The Bitcoin ETFs, if approved are believed to bring the much-needed security and the confidence in the market. Once some kind of trust is established, the gates for the entry of institutional investors would likely open and would push the price of Bitcoin to new heights.

The Bats BZX Exchange filed a proposed rule change with the SEC to get permission for listing shares of The Winklevoss Bitcoin Trust, which was rejected. The shares would have been listed as COIN which would be an ETF tracking the price of Bitcoin. Prior to this, the first application filed by the Winklevoss Twins with the commission was also rejected stating the unregulated nature of the Bitcoin spot markets.

Winklevoss face rejection twice

As mentioned above the recent petition filed by the Winklevoss twins was rejected as the SEC believes that the Bitcoin markets are not resistant to manipulation. Further, the release read,

“The arguments submitted in support of this claim are incomplete and inconsistent, and are unsupported or contradicted by data.”

While most people have heard about the Bitcoin ETF only lately, these ETFs were proposed by the brothers back in 2013. The SEC apparently took long (4 years) to reject the proposal in 2017. The twins then filed a request for review by the SEC which was granted but the proposal was denied, yet again.

To investors delight, the decision was not unanimous. Instead, there was a 3-1 vote which led to the denial. This is subtle signal to the market that the future holds a greater chance of approval and some of the SEC officials see the clear advantages of approving a Bitcoin ETF.

U.S SEC Commissioner Hester M. Peirce published a public statement expressing her dissent. She believes that the “disapproval order inhibits institutionalization,” as well as “dampens innovation.” She says,

“In addition, I am concerned that the Commission’s approach undermines investor protection by precluding greater institutionalization of the bitcoin market. More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order. More generally, the Commission’s interpretation and application of the statutory standard sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin ETPs. I will discuss each of these issues in turn.”

She further thinks that the SEC went beyond its role by focusing on the underlying asset instead of the derivative itself. While the SEC cleared that it did not mean to undermine the potential of cryptocurrencies and blockchain with this rejection, she actually thinks this to be the motive behind it.

This statement was appreciated by the community that Peirce got 11k new Twitter followers overnight. A Redditor on the  Subreddit Cryptocurrency wrote that Hester Pierce should be given some ‘love’ by the community, as a consequence of which her followers rose from 1,700 to 13,100.

SEC has a pile of ETFs to cover

While most people focus on the Winklevoss ETF application, SEC still has 14 more applications to review as of January 2018. As reported by Reuters, the red tape is causing the slow cycle of approval and feedback while the race for ETFs gets even more fierce. More importantly, the ETFs applied for by different players are not the same. While the Winklevoss twins aimed to directly purchase Bitcoin, some of the other funds focused on procuring Bitcoin futures. Bitcoin futures have been already listed in CBOE and CME last November and may have an easier time getting approval due to their inherent stability.

The investment firm VanEck and financial service company SolidX, applied for a Bitcoin ETF in June this year and is one of the most awaited ETF to be reviewed by the SEC. The ETF application by the two companies differs from that of the Winklevoss brothers on a fundamental basis – insurance. They aim to keep the fund physically backed, i.e. actually hold Bitcoin, to protect against loss or theft.

According to its filing, one share of the SolidX and VanEck fund is priced as high as $200,000. Daniel H. Gallancy, CEO of SolidX, says that the price is decided to focus more on institutional investors rather than retail investors.

Swedish Provider Successfully Running a Bitcoin ETF

While the SEC cannot decide how to run a Bitcoin fund, Stockholm based XBT Providers have launched their CoinShares series in 2015, CoinShares being the name of their product. After being listed on Nasdaq Stockholm, investors from all over Europe have invested close to $1 billion in it.

As reported by CNBC, “The XBT Bitcoin Tracker One (COINXBT) trades in Swedish krona, while the XBT Bitcoin Tracker Euro (COINXBE) — they launched on the Nasdaq Stockholm in 2015. XBT also issued versions in Denmark, Finland, Estonia, and Latvia.”

Conclusion

While there is a lot of uncertainty in the market, people are almost certain of the arrival of a Bitcoin ETF sooner or later. The institutional adoption that follows with it is also exciting to think of.

Kin-Wai Lau, CEO of Fatfish Internet Group, totally believes in the concept of Bitcoin ETFs and tells CNBC in an interview,

“I think we’re not far away; I think probably just a couple of months away from being ready for the market to generally accept an ETF.”