On January 10, the Securities and Exchange Commission gave the green light to 11 issuers that applied for bitcoin exchange-traded funds (ETFs). After a false announcement and a course change due to the ruling in Grayscale Investments, LLC v. SEC, the SEC approved spot Bitcoin ETFs for ARK 21Shares, Invesco Galaxy, VanEck, WisdomTree*, Fidelity, Valkyrie, BlackRock, Grayscale, Bitwise, Hashdex, and Franklin Templeton. In a statement made with the release, SEC Chair Gary Gensler stated “[t]hough we’re merit neutral…bitcoin is primarily a speculative, volatile asset”.
The SEC notes that it approved the ETFs in particular because of its finding that the exchanges’ rules were designed to “prevent fraudulent and manipulative acts and practices” and, “in general, to protect investors and the public interest.” The approval order acknowledges that the original decisions made in the Grayscale order had to be reconsidered in light of the D.C. Court of Appeals D.C. Circuit ruling in Grayscale Investments v. SEC. In the Grayscale order, the SEC found that Grayscale had not demonstrated sufficient means of preventing fraud and manipulation. After such reconsideration, the SEC found sufficient “other means” of preventing fraud and manipulation were demonstrated. These “other means” were considered in the ARK proposal, which argued that there is a high correlation between spot bitcoin markets and the Chicago Mercantile Exchange (CME) bitcoin futures market–which the SEC independently verified. Confirming this high correlation, the SEC concluded that fraud or manipulation that affects prices in spot bitcoin markets would likely similarly affect CME bitcoin futures prices. The SEC also stated that it could be reasonably expected to assist in surveilling for fraudulent and manipulative acts and practices in the specific context of the proposals of the 11 exchange-traded products (ETPs) because of surveillance-sharing agreements between the CME and the exchange.
In addition to this confirmation of “other means”, each proposal set forth aspects of its proposed ETP, including the availability of pricing information, transparency of portfolio holdings, and types of surveillance procedures, that are consistent with other spot commodity ETPs that the SEC has approved. As such, the SEC approval order found that the ETPs would be required to “provide full, fair, and truthful disclosure about the products” which would provide added benefits to investors. Further, because the ETPs will be traded on regulated exchanges, investors are protected as the exchanges are required to have rules designed to prevent fraud and manipulation, and the SEC will monitor them closely to ensure that they are enforcing those rules.
Importantly, Gensler, noted in his January 10 statement that the approval does not “signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws. As [Gary Gensler] said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws.”
*Read about Perkins Coie’s work on the WisdomTree ETF.
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