Why Is The SEC So Reluctant To Approve Bitcoin ETFs?

Sep. 27, 2018 9:00 AM ETBTC-USD, ETH-USD, LTC-USD, EOS-USD, XRP-USD5 Comments
Jasper Lawler profile picture
Jasper Lawler


  • Investors are eagerly awaiting the results of the SEC decision on the VanEck SolidX Bitcoin Trust ETF on September 30.
  • Compared to previous attempts, the VanEck Bitcoin proposal has a better chance of being approved. It could also be delayed again until February.
  • BUT We suspect the agency may choose to completely decline the ETF and wait for the cryptocurrency market to mature.

The VanEck SolidX Bitcoin Trust ETF

Investors are eagerly awaiting the results of the SEC decision on the VanEck SolidX Bitcoin Trust ETF on September 30. The decision has already been postponed once this summer.

According to the last update, the SEC “designated September 30, 2018, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change” described in the application issued by the VanEck SolidX Bitcoin Trust.

Compared to previous attempts, the VanEck Bitcoin proposal has a better chance of being approved. The VanEck proposal involves buying Bitcoin futures on the CME, rather than Bitcoin itself. The SEC has historically rejected applications for Bitcoin ETFs because the underlying asset is still inherently unregulated. Regulators remain concerned about Bitcoin ETFs being listed on the New York Stock Exchange (NYSE) or the Nasdaq.

The idea behind ETFs

ETFs (Exchange Traded Funds) were created to give investors exposure to a diversified portfolio of financial assets at low cost with better transparency.

Bitcoin ETFs would only track Bitcoin, which means that investors are only exposed to that single asset, much like futures-based commodity ETFs. Investing in only a Bitcoin ETF would not offer the kind of diversification offered by buying something like an ETF on the S&P 500. However, adding Bitcoin ETFs to a portfolio would add an additional asset class for diversification i.e. cryptocurrencies.

ETFs are relatively easy to use and would be convenient for investors who do not want to own the underlying asset and/or are reluctant to go through the process of opening digital wallets etc.

What is the SEC worried about?

The biggest worry the SEC has in regards to the cryptocurrency ecosystem is the lack of regulation, control and market surveillance. The absence of all these things increase the potential for market manipulation (pump and dump, spoofing, etc.).

The lack of outside regulatory agencies to watch the cryptocurrency world is of primary concern to the SEC. Typically the SEC will accept financial products from companies that offer protection against malfeasance within markets, as well as between market participants.

At the moment, the crypto world isn’t a market that is sufficiently regulated for the SEC. We suspect the agency may choose to completely decline the ETF and wait for the market to mature. Market consensus seems quite evenly split- with another delay until February being perhaps the most likely.

How would the creation of a Bitcoins ETF affect crypto prices?

An approval of Bitcoin ETFs by the SEC would give legitimacy to the cryptocurrency world. An ETF would give Bitcoin a stamp of approval as a real investment option. Something that could be used in professional portfolios, as well as by retail investors. Such an approval would likely increase the mass adoption of cryptocurrencies as part of an investment strategy.

The decision on the VanEck SolidX Bitcoin ETF may be make or break for the price of Bitcoin holding $6400.

An approval seems like the least likely result and could see prices skyrocket. A 5-10% price jump in Bitcoin is not unheard of and seems very plausible. If a Bitcoin ETF is approved, it beggars the question ‘which cryptocurrency will be next?’. The other top ETFs including Ethereum could see 10+% positive price moves on an approval.

It wouldn’t be the first rejection were it to occur so it wouldn’t have to be game over for Bitcoin. The issue is that some shorter-term crypto traders may have been holding on for an ETF approval and sell out if it doesn’t come. The 5000 level would be the next natural target should the $6400 level give way.

(Image Source: TradingView)

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please note that 79 % of our retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing money.

This article was written by

Jasper Lawler profile picture
Jasper joined the market analyst team of LCG - London Capital Group in 2016, and has accumulated over ten years' experience working in the financial markets. He delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Before joining LCG, Jasper worked as a market analyst and as a market strategist at two other well-known broker-dealers in the City of London and on Wall Street. He writes a widely-followed daily market wrap, plus commentaries on US, European and UK stock markets, FX and commodities. Jasper also hosts a weekly charting analysis webinar. Jasper uses both technical and fundamental analysis. Fundamental analysis includes taking apart company earnings reports as well as reviewing economic data and the moves from central banks. From a technical perspective he uses a systematic, trend following approach to trading. This typically involves a blend of price-action orientated trend and pattern analysis with the relative strength index (RSI) technical indicator to confirm changes in momentum. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (5)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.