The US Securities and Exchange Commission (SEC) recently rejected nine applications to register Bitcoin exchange-traded funds (ETFs). ETFs have become a popular method for investors to gain exposure to alternative assets such as gold, oil, and other commodities without having to actually purchase the commodities themselves. The general way in which ETFs operate is that the fund will purchase the commodity, then issue shares to investors. The value of each share is supposed to fluctuate depending on the value of the underlying commodity. It’s important to note that investors in the ETF don’t actually own the underlying assets or any claims to the underlying assets, meaning that they couldn’t convert shares of a Bitcoin ETF into actual holdings of Bitcoin.
The SEC used the same reasoning in rejecting each of the most recent Bitcoin ETF applications, namely that:
“the Exchange has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5), in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.”
In other words, the SEC wasn’t entirely convinced that the ETF operators were doing enough to prevent fraud. SEC Commissioners have indicated that they will go back and review these decisions to make sure that they were properly made, so all isn’t lost. The ETFs could still eventually be approved, or they could go back and strengthen their anti-fraud measures to ensure approval.
While investors who are serious about investing in Bitcoin should prefer investing in a Bitcoin IRA rather than a Bitcoin ETF in order to actually hold Bitcoin and gain the most benefits from investing in Bitcoin, the eventual introduction of Bitcoin ETFs will do a great deal to broaden investor interest in Bitcoin and bring it even more to the masses. That would be great news for Bitcoin investors and for cryptocurrency markets as a whole, as it continues the mainstreaming of cryptocurrency.