Bitcoin spot ETFs have been "approved" too many times. From Cointelegraph's "intern scandal" to the hacking incident officially promoted by the SEC, the market has witnessed too many ETF "approvals."
Today, ETF approval finally came into effect.
However, even the SEC’s approval of this “official announcement” seems particularly “crying wolf”. At the beginning of the official announcement, people still couldn't believe it and were still waiting for the final reversal.
When it was initially approved, a 22-page PDF document began circulating on the Internet. Documents show that 11 spot Bitcoin ETFs were approved. People who downloaded this file said that they obtained it from SEC official channels. But after onlookers clicked on the PDF link, they saw a 404 error message.
This also means that just a few minutes after the approval document was released, the document was removed from the SEC's official website. People continued to be skeptical. Was there another mistake at the last minute? Was the ETF really approved?
Bloomberg ETF analyst James Seyffart said: "It is almost certain that the SEC does not intend to make this document/link available to anyone outside the SEC. I confirm that the document I downloaded from the SEC's official website is an approval order and the SEC is expected to re-release it soon."
Soon, VanEck confirmed the approval news to the media, and the market finally believed that ETF was really coming.
About 40 minutes later, the PDF was released again from the SEC official website at another URL.
What information does this 22-page document show? Odaily Planet Daily brings you a summary interpretation.
What was approved?
This document lists all 11 ETFs that have been approved, as follows:
Grayscale Bitcoin Trust
Bitwise Bitcoin ETF
Hashdex Bitcoin ETF
iShares Bitcoin Trust
Valkyrie Bitcoin Fund
ARK 21 Shares Bitcoin ETF
Invesco Galaxy Bitcoin ETF
VanEck Bitcoin Trust
WisdomTree Bitcoin Fund
Fidelity Wise Origin Bitcoin Fund
Franklin Bitcoin ETF
In addition, the NYSE Arca, Nasdaq and BZX exchanges also approved the proposed rule changes. These exchanges have made certain changes to the trading rules, including clarifying the trust units and trading units of ETFs, including trading hours, trading volume limits, pricing, monitoring and information disclosure.
Exchanges need to ensure that the listing and trading of these products does not create unfairness or opacity in the market and is protected against potential fraud and manipulation.
Is Bitcoin really “easy to manipulate”?
The SEC believes that ETFs can meet the requirements of the Securities Act and require that the rules of the exchange must be designed to prevent fraud and manipulation. The approved ETFs can meet these requirements based on the following key factors:
Strong correlation with CME futures
CME futures are already compliant products. Therefore, the price correlation with CME is naturally the best choice for spot BTC to prove itself. In the approval document, the SEC listed the correlation between the BTC prices of two crypto exchanges, Coinbase and Kraken, and the CME futures prices since 2021.
The SEC conducted a correlation analysis and found that the two are "highly correlated" with price changes in the CME Bitcoin futures market. If hourly data is used, the correlation result is no less than 94.2%. Using minute-by-minute data, the result is no less than 67.9%.
This means that if fraud or manipulation occurs in the spot Bitcoin market, it is likely that these activities will also affect the futures market and be detected by CME's monitoring system.
Monitoring sharing and preventing manipulation
The exchange where this ETF is listed has the ability to monitor its market transactions, including real-time monitoring and historical data analysis to identify abnormal trading patterns and potential manipulative behavior.
The exchange has also established comprehensive surveillance-sharing agreements with regulated markets such as the Chicago Mercantile Exchange (CME). Such agreements facilitate information sharing to improve the detection and prevention of potential market manipulation.
Exchanges may need to add rules to prevent market manipulation, such as by monitoring unusual trading behavior, restricting large transactions, and implementing trading suspensions.
Transparency and Disclosure
The proposal includes measures to improve transparency and information disclosure, such as providing real-time pricing information of trust shares and units, and information on trust asset holdings, which will help market participants make more informed trading decisions and reduce the room for manipulation.
The exchanges that trade ETFs provide quotes and last traded information for each trust through a securities information processor;
Information relating to the Trust’s IIV and NAV is available on each Trust’s website;
The exchange updates the IIV every 15 seconds during its normal trading hours;
the Exchange’s monitoring procedures and ability to obtain information regarding transactions in the Trust’s shares;
The exchange sets the conditions for suspension and termination of trading;
Requirements for a registered market maker for each trust.
The offering and trading of Trust shares and units must comply with all applicable securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws are designed to protect investors from fraudulent and manipulative practices.
Investor Protection Measures
The proposal also includes investor protection measures, such as ensuring that transactions in trust shares and units are fair and transparent, and that necessary information is provided to investors so that they can make informed investment decisions.
As a regulator, the SEC carefully reviews rule changes made by exchanges to ensure they meet standards to prevent fraud and manipulative behavior.
Based on the above factors, the SEC believes that the exchange's rule change proposal meets the requirements of the Securities Exchange Act and can design effective mechanisms to prevent fraud and manipulation, thereby protecting investors and the public interest. This review process ensures that the exchange can provide a safe and fair market environment when listing and trading Bitcoin-related products.
The SEC considered the comments of the commenters
The committee also considered other comments regarding Bitcoin ETPs, the document noted.
Some commentators claimed that the Commission must approve these proposals because CME Bitcoin futures are already available for trading on other national securities exchanges. Since the spot Bitcoin ETF and CME Bitcoin futures ultimately track the same underlying asset, the Commission should approve these proposals.
Some commentators claimed that the Commission should approve the proposals for a variety of investor protection reasons. A spot Bitcoin ETP would provide investors with a lower-cost, more efficient way to hold Bitcoin exposure. It would be more convenient and secure than holding Bitcoin directly, and would be subject to more regulation.
Some commentators argued that the SEC should reject the proposals on investor protection grounds, since some market participants could take advantage of retail investors.
The filing states that the Commission acknowledges these concerns. However, under the Securities Act, the SEC believes that the proposal complies with the requirements of the securities laws and therefore the Commission must approve it.
Are ETF products safe?
The document also mentions the SEC’s concerns about security, including both the security of the blockchain itself and whether the custodian can properly keep it.
Security of blockchain
The document mentioned that the decentralized nature and encryption technology of the Bitcoin blockchain provide a certain degree of security, but there is also a risk of being attacked by hackers.
Despite the security risks, some commentators see the transparency of the Bitcoin blockchain as an advantage because it allows the trust’s Bitcoin holdings to be tracked in real time.
Double Spending Risk
Some commentators have expressed concerns about “reverse hacking” attacks, where the blockchain could be manipulated to change transaction records and affect the value of the ETF’s assets.
What does the SEC think?
The SEC acknowledged those concerns in its filing. They said the agency took those risks into account but believed the proposal would satisfy the requirements of the Securities Act and protect investors and the public interest.
Is BTC custody reliable?
The filing states that the ETF’s bitcoins are held by a custodian, rather than directly owned by the coin. This structure could introduce risks because if the custodian’s security measures are inadequate, the bitcoins could be stolen.
The SEC acknowledged that custodians could introduce risks to the product. However, as with all the issues above, the SEC “must approve the proposal if it finds that it complies with the requirements of the Securities Act.”
Another risk of custody is that assets are “uncovered.” If the shares issued by the trust are not backed by enough bitcoins, the trust may be “uncovered,” which may result in losses for investors.
The SEC believes that the "uncovered" issue is a risk that can be prevalent in all ETPs, not just ETPs that hold Bitcoin. Any such issue may constitute a potential violation and be sufficient to initiate delisting procedures. In addition, this behavior may also constitute a violation of the Securities Act and the Commodity Exchange Act.
in conclusion
This order of approval is based on the statements and descriptions in each of the Exchanges' respective amended filings, which the Commission has carefully evaluated in light of the discussion above. For the reasons set forth above, including the Commission's relevance analysis, the Commission finds, pursuant to Section 19(b)(2) of the Exchange Act, that these proposals comply with the requirements of the Exchange Act and the rules and regulations applicable to a national securities exchange, and in particular, the requirements of Sections 6(b)(5) and 11A(a)(1)(C)(iii) thereof.
NOW, THEREFORE, pursuant to Section 19(b)(2) of the Securities Exchange Act, IT IS ORDERED that the following proposals (SR-NYSEARCA-2021-90; SR-NYSEARCA-2023-44; SR-NYSEARCA-2023-58; SR-NASDAQ-2023-016; SR-NASDAQ-2023-019; SR-CboeBZX-2023-028; SR-CboeBZX-2023-038; SR-CboeBZX-2023-040; SR-CboeBZX-2023-042; SR-CboeBZX-2023-044; SR-CboeBZX-2023-072) are approved on an accelerated basis.
-- Issued by the Commission
