The Bitcoin ETF Gets Rejected, This Is Why It Doesn’t Matter

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Another Bitcoin ETF Proposal Gets Rejected by the SEC

Launching a Bitcoin ETF has always seemed like a distant dream. The Wilshire Phoenix Bitcoin ETF proposal is the latest to be rejected by the SEC.

Most people readily agree that the SEC will never approve such a trading vehicle.

No one Really Needs a Bitcoin ETF

The lack of regulation surrounding Bitcoin in the US remains a pressing problem.

Combined with the volatile market swings, it is very difficult to bring such an ETF to the masses.

Over the years, several Bitcoin ETFs have been proposed, and they have all been rejected by the SEC.

For Wilshire Phoenix , it was a predictable outcome, after all.

Although the SEC doesn’t actively oppose Bitcoin or crypto trading, approving an ETF is a different matter altogether.

Until certain conditions have been met, such a trading vehicle will not come to market.

It also seems unlikely that any future ETF proposal will have more success.

One has to wonder if such a vehicle, catering to institutional investors, is even necessary.

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The world’s leading cryptocurrency has performed exceptionally well in its first decade, even without such trading vehicles.

Despite the rejection, the market hasn’t budged all that much.

This recent Bitcoin dip is seemingly a consequence of all financial markets taking a beating.

If CBOE’s Bitcoin ETF gets Rejected, Will it Upend the Raging Bulls?

While the world is eagerly awaiting for US SEC’s decision on Bitcoin ETF filed by CBOE, the SEC has struck lightning by postponing its decision on the Direxion Bitcoin exchange-traded fund (ETF) filing until September 2020. So, what if Cboe sponsored Bitcoin ETF gets delayed or rejected for that matter, what and how big can be the impact?

CBOE sponsored Bitcoin ETF: Can it get delayed?

While the world is preparing for Chicago Board Options Exchange Global Markets’ (CBOE)-Solid X Bitcoin ETF decision will be coming soon, this deferment of Direxion Bitcoin exchange-traded by SEC, has raised alarms that there are chances it may differ the CBOE Solid X ETF as well. Since the SEC has 45 days from the date of publication in the Federal Register and may have another window for an extension, there is every possibility SEC would want to utilize the time to come to a fair decision so that it could be in the best of all the stakeholders.

As the markets are moving the way they are and there is momentum being built upon BTC which has shot up over USD 1000 over past week or so, the delay news may come with a mild correction which may recover shortly after. With Direxion Bitcoin exchange-traded fund (ETF) already being delayed the market is somewhere ready for it.

In fact, an approval would have a larger positive impact on the BTC prices than a delay would have on a negative side.

What if the application gets rejected?

If the CBOE- Solid X ETF application gets rejected, it would not be the first time the application would be rejected. It has rejected more than 15 bitcoin-related ETFs that have been proposed since 2020 and over the past one year, there have been a few rejections already which includes to the likes of CBOE, Gemini, and SolidX.

As for SEC, there are still a lot of hurdles that need to be cleared before it could pronounce anything in favor,

  • Unregulated market and transparency: One of the reasons Bitcoin had shot down the Winklevoss ETF application was that it felt the BTC market was still in the relatively early stages of its development and the market was fairly unregulated. Also, transparency of prices and exchanges was questioned and considered a key factor for rejection. Bitcoin markets are still unregulated and also a lot of exchanges still has transparency issues.
  • Pricing effectiveness: As crypto prices are highly volatile ; SEC’s other concern was about how the funds would work and whether they could be priced and trade effectively. Also at a time SEC also believed that BTC was illiquidity to an extent and hence it could trap the funds. – The pricing effectiveness is still difficult as there is still a wide difference in prices across exchanges and volatility still persists
  • Security of Exchange: Since a lot of major exchanges have faced security lapses and hacks, the SEC is still not convinced that the underlying assets of Bitcoin will be secured and safe.

Although a lot of other hurdles such as retail investor protection, the presence of custody services and availability of Bitcoin futures on CBOE and CME exists still these don’t look enough that could confirm BTC ETF by CBOE and SOlidX will go through

Looking at the impact of this on pricing, apart from the initial rejection of Winklevoss bothers, which saw a major collapse of Bitcoin from sub USD 1300 to USD 950, all other ETF rejections did not see a drastic negative impact on prices in short-term and the long-term sentiment remained intact. Whatever price correction had occurred because of the rejection news, was also seen being recovered in the coming few days.

As the situation currently is, looks like the event has gathered to much noise around it which would definitely lead to a price correction for the short term but the long-term trend may not be affected much. An ETF in crypto definitely and can change the direction of institutional money to cryptos. But its rejection is not an end to the road although it may dampen the sentiment for a very short term. Institutions will still have options a lot of options to invest in cryptos including the futures on CBOE and CME and also exchange-traded notes which are currently listed in Sweden and been contemplated in a lot of other European countries.

The article is not meant to dampen the excitement and positivity build around Bitcoin ETF, but more of a devils advocate to keep crypto community prepared if the decision doesn’t come in favor of Bitcoin ETF’s. It would just mean that the crypto markets need to mature more before the SEC can finally allow it. The short-term sentiment might turn bearish but in medium to long-term Bitcoin will definitely recover

Will SEC approve the ETF this time or will delay or reject it? Do let us know your views on the same.

Industry Speaks Out in Aftermath of Bitcoin ETF Rejection

Michael del Castillo & Alyssa Hertig

Industry Speaks Out in Aftermath of Bitcoin ETF Rejection

The US Securities and Exchange Commission has rejected an effort to list the Winklevoss Bitcoin ETF (COIN), prompting comment from many of those who watched and waited for the decision.

Reactions to the news were, as can be expected, mixed. Markets, having hit a new all-time high of roughly $1,325 prior to the decision, fell sharply before recovering above $1,100. Some observers deemed it a setback for bitcoin, while others, by comparison, said that it wouldn’t have any long-term impact.

When reached for comment, Tyler Winklevoss struck an optimistic note, telling CoinDesk that more engagement with the agency would follow.

He said in a statement:

“We remain optimistic and committed to bringing COIN to market, and look forward to continuing to work with the SEC staff. We began this journey almost four years ago, and are determined to see it through. We agree with the SEC that regulation and oversight are important to the health of any marketplace and the safety of all investors.”

Also striking a positive note was Spencer Bogart, head of research for Blockchain Capital. Bogart told CoinDesk that he thinks the rejection to the Winklevoss bitcoin ETF will have no impact on bitcoin’s “compelling fundamental growth story”.

However, he argued that the decision dampens the chances that the SEC will approve other bitcoin-tied financial products, deeming their likelihood “extremely low”.

“The ground for disapproval of COIN appear to be driven by concerns with bitcoin’s underlying markets as opposed to something specific to the COIN filing.”

Industry takes

Others took a more critical position in light of the exchange’s reasoning behind its decision. In a 38-page document, the agency pointed to a lack of surveillance in the global bitcoin market, as well as an overall lack of regulation that it posited could spur investor fraud.

Yet Jerry Brito, executive director of the non-profit Coin Center, argued that the decision “creates a chicken and egg problem” in which roadblocks to new financial products hinder the kind of development needed to address those concerns.

“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?”

Charles Hayter, CEO and founder of cryptocurrency data site CryptoCompare, told CoinDesk that the rejected bitcoin ETF application, had “dashed” the “hopes that bitcoin would move towards mainstream finance”.

At the same time, Hayter went on to say that the SEC’s decision doesn’t preclude the launch of other bitcoin exchange-traded products. Sweden, for example, is home to the Bitcoin Tracker One exchange product.

“Whether other jurisdictions will allow a Bitcoin ETF remains to be seen,” said Hayter. “But for the time being all is not well – and it seems as if the other ETFs in the pipeline for the SEC are facing the same stone wall.”

Looking ahead

But will the decision slow bitcoin down itself? Adam Back, CEO of bitcoin startup Blockstream, said he thinks today’s turn of events has only delayed the inevitable.

He told CoinDesk:

“I believe this decision by the SEC today is a temporary detour on bitcoin’s inevitable path that will sooner or later lead to every Wall Street and Main Street investor being able to participate in this promising technology of the future, and in parallel, adoption will continue apace for the disruptive, internet native, digital gold and electronic cash properties from which bitcoin derives its value.”

Others, too, reflect on the decision in light of the digital currency’s future. Dave Nadig, CEO of industry news site ETF.com, said he wasn’t surprised by the SEC’s move. In fact, he posited that bitcoin’s unregulated nature is an inherent part of the digital currency.

“The decision isn’t that surprising. Ultimately this is less about what bitcoin is or isn’t, and is about the underlying market structure for bitcoin itself. If the SEC doesn’t know where the buck stops on a security, it’s hard for them to get behind it,” he said, concluding:

“Honestly, the whole point of bitcoin is the buck never stops. It’s unregulated by design.”

Image via Shutterstock

Read more about.

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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