Two major US exchanges have submitted six bitcoin ETF applications to federal regulators this month. The Chicago Board Options Exchange and the New York Stock Exchange filed the applications with the
Two major US exchanges have submitted six bitcoin ETF applications to federal regulators this month. The Chicago Board Options Exchange and the New York Stock Exchange filed the applications with the Securities and Exchange Commission, representing another push to bring bitcoin trading products to mainstream investors.
In March, the SEC rejected a bitcoin ETF proposal from the Winklevoss twins. The agency prevented what would have been the first regulated bitcoin investment vehicle from launching on a major stock exchange. After the rejection, bitcoin's price fell from $1,300 to $900, a 30 percent slide. The SEC cited concerns about unregulated overseas markets where bitcoin trades, saying those markets could enable price manipulation.
Jerry Brito, head of CoinCenter, a nonprofit focused on cryptocurrency policy, described the bind in March: "The Winklevoss ETF proposal was rejected because the SEC found that the significant markets for Bitcoin tend to be unregulated overseas markets that are potentially subject to price manipulation. But this creates a chicken and egg problem. How do we develop well-capitalized and regulated markets in the U.S. and Europe if financial innovators aren't allowed to bring products to market that grow domestic demand for digital currencies like Bitcoin?"
The global regulatory picture has shifted since then. Japan and South Korea both tightened their oversight of cryptocurrency exchanges, establishing national licensing systems and enforcing strict Know Your Customer and Anti-Money Laundering requirements. Japan has grown into the world's second-largest bitcoin exchange, handling more than 32.7 percent of all global bitcoin trades.
These developments may improve the odds for the new ETF filings. The Cboe has already demonstrated that investors can trade bitcoin futures in a regulated setting. A Cboe spokesperson said: "Given the success of the launch of our bitcoin futures, several partners are very interested in moving forward with the development of an exchange-traded product." Industry observers believe the SEC could approve an ETF within the next year.
The NYSE filings provide clues about how these products would work. Rather than tracking the price of bitcoin across all cryptocurrency exchanges worldwide, the funds would use prices from the Cboe and CME futures markets. "The Fund will not be benchmarked to the current price of bitcoin and will not invest directly in bitcoin. When the price of Bitcoin Futures Contracts held by the Fund declines, the Fund will lose value," according to the SEC filing.
