SEC Raises Concern on Listing of Bitwise Bitcoin ETP Trust

The US Securities and Exchange Commission (SEC) has said that it had not yet determined whether to allow Bitwise Asset Management to launch a spot bitcoin exchange-traded fund. Bitwise is one of the world’s largest crypto asset managers Based in San Francisco and manages over $1.3 billion across various asset class.

Bitwise is backed by leading institutional investors and have a strong team and Corporate Governance in place under the leadership of Hunter Horsley, who is CEO and Board Director. Hunter was Previously Product Manager on monetization at Facebook and Instagram before joining Bitwise.

SEC is seeking public input on several areas of the fund’s application. SEC said it would start a process to determine whether to accept or reject Bitwise Bitcoin ETP Trust’s application for listing on the NYSA Arca exchange. SEC has ordered institution of proceedings under Section 19(b)(2)(B) of the Act and is seeking comments on some of the pertinent issues related to concern of protecting investors interest. Exercise by SEC becomes imperative as prices of Bitcoin are falling.

Regulator is seeking views on whether the proposed Trust and Shares would be susceptible to manipulation and whether the Exchange’s proposal is designed to keep a check on unfair practices. Views on liquidity and transparency of the bitcoin markets. Are the bitcoin markets’ susceptibility to manipulation, and what is the suitability of bitcoin as an underlying asset for an exchange-traded product (“ETP”)?

According to the Exchange the rules provides long-term investors in the Trust with strong protection. The protection comes from the fact that exclusive use of in-kind creations, redemptions and fee accruals, will be required to be adhered in all situations except when the Trust is required to be liquidate or have to pay for extraordinary expenses. The in-kind structure ensures that in all the scenarios, Trust will have to maintains appropriate amount of bitcoin/Share, irrespective of the NAV calculation based on the CME US Reference Rate.

Bitcoin futures Market leads price discovery compared to the bitcoin spot market. Person who is attempting to manipulate the Exchange Traded Products (ETP) would also have to trade on the CME bitcoin futures Market.  SEC has invited written comments on the issue. Post Receiving comments, Commission will examine the issue and decide whether to approve the proposed rule change or disapprove the same.

Recently SEC has rejected filing by some of the leading Asset Management firms including First Trust Advisors, Fidelity, SkyBridge etc for listing and trading of spot bitcoin exchange-traded fund

Earlier in October 2021 SEC has allowed ProShare  to launch first Bitcoin based ETF. ProShare Fund was not allowed to invest directly in Bitcoin but to provide capital appreciation by managed exposure to futures contracts of Bitcoin. In 2021, US Infrastructure bill also helped in mainstreaming the digital currency by providing tax framework for it. Over the period Bitcoin prices have crashed and are presently trading around $37000, down approx. 46% from its peak of $68000 in November 2021. Falling Prices of BTC and concerns of manipulation and frauds are causing SEC to have a closer look on BTC based Exchange Traded Products (ETP) and Exchange Rules before allowing listing.

Bureau Galactik Views

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