The U.S. Securities and Exchange Commission (SEC) approved a proposal on June 28 that would make it easier for investment companies to bring new exchange-traded funds (ETFs) to market. It remains unclear, however, whether the new rules would apply to bitcoin and cryptocurrency ETFs.
The proposed changes by the SEC would streamline the process for launching new ETFs by removing the need for special SEC exemptions and by establishing formal procedures for issuing certain ETFs. The investment fund industry has long complained that the current process is cumbersome and expensive.
According to the SEC chair, the new rules are intended to benefit so-called “plain vanilla” ETFs. Chair Clayton has said the proposed changes would therefore cover most ETFs that are currently active in the market.
More complex products—particularly leveraged ETFs—would require closer scrutiny. The SEC intends to exclude so-called “exotic” ETFs from the simplified framework. In theory, the new rules could open the door for blockchain-focused ETFs—funds that invest in companies behind blockchain technology—which the SEC might view as less risky. However, blockchain-based ETFs were not explicitly mentioned in the SEC’s press release.
Many industry observers consider it unlikely that bitcoin-based ETFs would qualify as “plain vanilla” under the SEC’s definition.
Since the launch of bitcoin futures contracts by the CME Group and CBOE earlier this year, roughly a dozen ETF applications have been filed with the SEC. To date, all of these applications have been rejected. The SEC has consistently cited high volatility, limited liquidity and insufficient regulation as reasons for denial. The commission is currently reviewing a proposal from CBOE Global for a bitcoin ETF backed by VanEck and SolidX.
Approval of a bitcoin-based ETF would be significant: some analysts believe it could spark a trend reversal in the broader crypto market. Arthur Hayes, CEO and co-founder of the cryptocurrency exchange BitMEX, recently appeared on CNBC’s Fast Money and predicted that if the SEC approves a bitcoin ETF, the price of bitcoin could rise to $50,000 by year-end.
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