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No spot bitcoin ETFs for now after ‘Scrooge’ SEC denies 2 more applications on investor protection grounds

Proposals by Valkyrie and Kryptoin didn’t meet the SEC’s investor safety standards.

Emils Vanags/Getty Images

  • The SEC rejected proposals for spot bitcoin ETFs from Valkyrie and Kryptoin on Wednesday.
  • The applications failed because they didn’t meet standards for protecting investors against fraud and manipulation.
  • Market participants were confident spot bitcoin ETFs weren’t far off, after the SEC approved futures-based ETFs in October.
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The Securities and Exchange Commission rejected applications for Valkyrie and Kryptoin spot bitcoin ETFs on Wednesday, the latest blow to those hoping to finally get the financial products approved in the US.

The securities regulator has yet to give the go-ahead for a US exchange-traded fund that invests directly in the cryptocurrency, pointing to concerns about fraud and manipulation.

In notifications to NYSE Arca and Cboe BZX Exchange, the SEC refused their proposals to list and trade the spot bitcoin products from Valkyrie and Kryptoin. It said these failed to meet its investor protection requirements.

Neither proposal meets its standard “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest,” the SEC said in the rejection orders published Wednesday.

The decision comes five weeks after the agency shot down a Cboe BZX Exchange application for a VanEck spot bitcoin ETF in November.

Bloomberg Intelligence analyst Eric Balchunas described the latest move as a “Scrooge-jection,” and said it’s unlikely a spot bitcoin ETF will get the green light in the US next year, either.

“The fact that the SEC is disapproving faster than they needed to — we were optimistic about futures, but we’re not confident in a 2022 approval,” Balchunas said, according to a Bloomberg report. 

Gary Gensler, the chairman of the SEC, has indicated the agency is in favor of ETFs related to bitcoin futures, but not those based on the cryptocurrency itself. It has rejected or delayed applications, even as American investors can access spot bitcoin ETFs listed in Canada. 

In previous rejection orders, the regulator has flagged its concerns about price manipulation in bitcoin spot markets and the lack of sound custody options.

Market participants were convinced that the SEC’s approval in October of bitcoin futures ETFs was a sign of thawing in its attitude. But on December 17, it delayed decisions on applications for spot bitcoin ETF applications from Grayscale and Bitwise.

The SEC is due to make a ruling on Anthony Scaramucci’s Skybridge Bitcoin ETF before January 22, and on Fidelity’s Wise Origin Bitcoin Trust application by January 27.

ProShares debuted the first-ever futures-based bitcoin ETF in the US in late October. It became the fastest ETF to top $1 billion in assets under management, hitting that level after just two days of trading.

That same month, the SEC gave the go-ahead to two other bitcoin-linked futures-based funds launched by Valkyrie (BTF) and VanEck (XBTF).

Read More: 2022 stock market outlook: The top strategists at Goldman Sachs, JPMorgan, and more share their predictions for the S&P 500 next year and how you should invest your money

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