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Citing reasons of safety and market volatility, the spot ETFs have not been welcomed by the SEC but are likely to become a reality soon.
The latest to enter the Securities and Exchange Commission’s rejection club is Fidelity’s Wise Origin spot bitcoin ETF application. The recent disapproval of the spot bitcoin ETF demonstrates the SEC’s preference for the bitcoin futures ETF. As per the filing on Thursday, the SEC disapproved a rule change proposed by Cboe BZX Exchange stating that such a rule change won’t be preventing fraud and it won’t even protect investors.
Reasons for the Spot ETF Disapproval by SEC
As observed in its reservations against the other similar sport ETF applications, this time too, the SEC cited reasons of manipulation and fraud and rejected the proposal to protect the investors. To put it in a legal way, the market regulator cited that BZX has failed to meet the criteria under the Exchange Act and the Commission’s Rules of Practice regarding its proposal being aligned with the Exchange Act Section 6(b)(5)’s requirements. Additionally, it also doesn’t fulfil the essential requirement of designing the ETF exchange in a way that helps prevent frauds and other devious acts in the public interest.
Claire Putzeys, Fidelity investments communications director, expressed his disappointment but also reiterated his belief in the market’s readiness for such a product and is expecting to have a more constructive discussion with the SEC in future.
Some Other Rejected and Approved Proposals by the SEC
Just a week ago, the SEC had rejected a similar application received from First Trust and SkyBridge Capital. Prior to this, in December, it also disapproved other spot ETF proposals by investment firm Kryptoin, VanEck and WisdomTree. However, when it comes to the bitcoin futures-based ETF exchanges, ProShares’ application was approved in October last year and the same is already listed and traded on the New York Stock Exchange. A few other approved proposals include the Valkyrie Bitcoin Strategy ETF and the VanEck Bitcoin Strategy ETF.
The main difference lies with respect to the actual ownership of the cryptocurrency, and this is where the regulator’s concerns emerge. When the exchange is providing a futures ETF, it means that the buyer is technically purchasing a contract representing the real cryptocurrency’s value. A futures ETF shields you from the market fluctuations but is devoid of the option of voting or staking coins which is possible when you own the actual cryptocurrency.
Spot bitcoin ETFs are exactly the opposite and include the trading of actual cryptocurrency and in a way work on the same principles as a regular crypto exchange platform. Citing reasons of safety and market volatility, the spot ETFs have not been welcomed by the SEC but are likely to become a reality soon.
Fidelity Investments Inc. is an asset management company headquartered in Boston that was established in 1946 and today (as of September 2021) has a total of $11.1 trillion in assets covering 40 million investors. Fidelity’s 52,000+ associates serve its customers through 12 regional sites across 9 countries and through its 200+ Investor Centers.
The firm offers a range of services starting from investment management, portfolio guidance and retirement planning to brokerage, and similar other financial products. Fidelity’s end goal is to provide people broad access to financial expertise so that they can plan their life the way they always wanted to.