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The SEC seemingly has no appetite for non-regular ETF filings and may have struck down filings from Valkyrie and Direxion.
The Securities and Exchange Commission (SEC) reportedly shot down at least one application for creative exchange-traded funds (ETF)– including one from Valkyrie. Valkyrie filed for a leveraged Bitcoin futures exchange-traded fund (ETF), while Direxion filed for an inverse fund for bears. However, it would seem that the SEC is not seem to be ready to take on more creative futures products at the moment. The regulatory agency wants to limit new BTC-related products to those providing unleveraged exposure to Bitcoin futures contracts – such as Proshares. The company successfully launched its own ETF, dubbed Proshares Bitcoin Strategy, in the US last week.
Bloomberg’s Senior ETF analyst Eric Balchunas first revealed this update on Twitter on October 28th. Balchunas’ post suggested that the SEC decided to veto asset management firm Valkyrie, and financial products provider Direxion’s application filings. The statement read:
“Looks like the SEC is not having it with the levered (and likely inverse) Bitcoin futures ETFs. Can’t hurt to try tho. Had they gone through likely billion dollar trading vehicles in a few yrs. via Dow Jones.”
Balchunas Believes SEC Should Have Approved One ETF Filing, Mentions Direxion Over Valkyrie
Both Valkyrie and Direxion had tendered their filings to the SEC on October 26th. The former’s leveraged Bitcoin futures ETF filing was offering 1.25x exposure to the asset. Meanwhile, the latter’s Bitcoin Strategy Bear ETF filing enabled spectators to buy futures that short the price of Bitcoin. Both filings are indicative of the asset-management industry’s efforts to take advantage of the newly commissioned US ETF playground. Furthermore, offering new deviate products was also an attempt to cash in on growing investor interest in digital currencies.
Balchunas opines that at least one of the ETF filings should have gotten the green light – favoring Direxion. He admitted that the ‘holding swaps, options, and forwards, along with futures offered by Valkyrie, might be extreme at the moment. This is because the SEC frowns at funds holding anything other than direct futures contracts bought from the Chicago Mercantile Exchange (CME). However, Direxion’s inverse proposal offered investments only in BTC futures which is in line with the standard. As Balchunas put it:
“Would be interesting (and poss) if they let the Inverse one go through. That one was limited to futures. Valkyrie’s was a bit of a departure from that language.”
How the ETF Filing Process Works
Pursuant to the rules governing ETF proposals, the SEC has 75 days to review fund applications. At the end of that window, fund offering papers kick into effect if there are no objections from the regulatory agency. Furthermore, the Commission can ask fund managers to take back their filings for certain reasons. However, managers do not have to do so. Refusing to withdraw the filing is usually to force the regulator to make a formal decision.
Amid the influx of ETF filings, two more came from AXS Investments on October 27th, according to ETF Store President Nate Geraci. The SEC filings are for a regular Bitcoin Strategy ETF and another shorting or inverse fund.