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Jake Chervinsky @jchervinsky
, 11 tweets, 3 min read Read on Twitter
0/ The SEC killed *all* of the pending derivative-backed #bitcoin ETFs today. Why did they do it, and what does it mean?


1/ All eyes were on the SEC this week, as the final deadline to approve or reject the two ProShares bitcoin ETFs was tomorrow, August 23.

Most of us on #cryptotwitter were expecting the ETFs to be rejected.

2/ But we weren't expecting the SEC to also reject *seven* other derivative-backed ETFs proposed by GraniteShares & Direxion. Those ETFs weren't due for final decisions until September 15 and 21 respectively.

The only ETF left now is the VanEck/SolidX commodity-backed offering.
3/ So why did the SEC reject all these ETFs?

Basically, the decision came down to the risk of market manipulation & fraud. The SEC can only approve an ETF that is "designed to prevent fraudulent and manipulative acts and practices." In the SEC's view, these ETFs were not.
4/ The SEC relied heavily on last month's denial of the Winklevoss ETF appeal, which found that:

- bitcoin markets are not inherently resistant to manipulation
- to deter manipulation, exchanges need a surveillance-sharing agreement with a regulated market of significant size
5/ ProShares & the other ETFs tried to solve this problem by pricing bitcoin through the well-respected, regulated CBOE & CME futures markets.

In theory, this gave derivative-backed ETFs a better chance of approval than commodity-backed ETFs, which use unregulated spot markets.
6/ The SEC wasn't impressed, finding that the bitcoin futures markets aren't "of significant size" as required by the Winklevoss denial.

They even cited #cryptotwitter favorite Chris Giancarlo, CFTC Chairman, who characterized the volume of the futures markets as "quite small."
7/ As a result, the SEC found that CBOE & CME wouldn't provide enough info about the "identity of market participants" on unregulated spot and derivative markets "where a substantial majority of trading" occurs.

They didn't actually cite BitMEX or Bitfinex, but . . . you know.
8/ They also repeated the concern that most trading "occurs on unregulated venues overseas that are relatively new and that generally appear to trade only digital assets."

This makes me wonder if they'll approve *any* ETF before spot markets are regulated, which may be a while.
9/ Long story short, this isn't a great sign for the bitcoin ETF bulls. The SEC's demand is clear. They want to see:

(i) a surveillance-sharing agreement . . .
(ii) with a regulated market . . .
(iii) of significant size.

That seems like a tough request to satisfy in 2018.
10/ On the other hand, today's decision gives valuable guidance to the folks at VanEck & SolidX. I'm excited to see what @gaborgurbacs & co. come up with.

The only ETF deadline left, and the only one most of us cared about in the first place: VanEck/SolidX on September 30.
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