The ETF proposals were based on bitcoin futures contract prices. Futures are currently offered by CBOE, pictured, and CME Group.
- The US Securities and Exhanges Commission rejected nine bitcoin ETF proposals late on Wednesday.
- The watchdog cited concerns about possible price manipulation and insufficient market oversight.
- There is as yet no fully regulated bitcoin ETF product.
- Bitcoin bulls believe that if one is approved, it will expand the market by bringing in new investors.
- You can follow the live bitcoin price on Markets Insider.
LONDON - The US Securities and Exchange Commission (SEC) has rejected nine applications to create a bitcoin exchange-traded fund (ETF) in a blow to bitcoin bulls who had hoped such a product would prove a breakthrough for institutional adoption.
Late on Wednesday, the SEC rejected an application for two products from ProShares, two from GraniteShares, and five other proposals from Direxion. It means the world is still waiting for its first fully regulated bitcoin ETF product.
The applications were all rejected because the market watchdog believes not enough is being done to guard against bitcoin price manipulation. The SEC said the proposals did not do enough to show they were "designed to prevent fraudulent and manipulative acts and practices."
All the applications were linked to bitcoin futures contracts and the SEC said none of the applications had done enough to show that the futures markets is of "significant size."
"That failure is critical because, as explained below, the Exchange has failed to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, and therefore surveillance-sharing with a regulated market of significant size related to bitcoin is necessary," the SEC wrote.
In short, if the bitcoin futures market is too small, it could be manipulated relatively easily. The futures market administrators, therefore, need to be sharing information with the bitcoin exchanges that supply their pricing data to ensure they can investigate and punish any suspected manipulation. These arrangements are not in place at the moment.
Commodities trading venues CBOE and CME last December launched the first bitcoin futures products but daily trading volumes remain small.
The rejection of the ETF applications is a blow to bitcoin bulls who hope that the launch of such a product will broaden the appeal of bitcoin, bringing in new investors into the market.
In July, the SEC rejected another application for a bitcoin ETF product submitted by the Winklevoss twins. The SEC is still considering other proposals, including the closely watched VanEck SolidX Bitcoin Trust. The SEC recently delayed its decision on the VanEck product until September 30.
Bitcoin dropped close to 2% late on Wednesday when the SEC's latest rulings were announced. However, the cryptocurrency quickly recovered. Bitcoin is up 1.1% against the dollar at 11.55 a.m. BST (6.55 a.m. ET).
The SEC ruling stressed that the ETF rejections "do not rest on an evaluation of whether bitcoin, or blockchain technology more generally, has utility or value as an innovation or an investment." This may be providing price support.
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