• Ark 21Shares’ Bitcoin Spot ETF filing is rejected by the SEC

  • The US Securities and Exchange Commission has rejected Ark 21Shares bitcoin spot ETF due to a lack of adequate investor protection.

    Ark 21Shares is a partnership between Wall Street titan Cathie Wood’s Ark Investment Management and investment firm 21Shares, which filed a joint application on behalf of the Cboe BZX Exchange to launch its product last July. “The Commission concludes that BZX has failed to meet its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), particularly the requirement that the rules of a national securities exchange be ‘designed to prevent fraudulent and manipulative acts and practices’ and ‘to protect investors and the public interest,'” the SEC stated in a decision statement.

    The application’s decision has been postponed several times, with the most recent postponement occurring in January 2022.

    Why isn’t there a spot ETF?

    Spot ETFs directly track the price of bitcoin without requiring clients to own the asset right now. The ETFs are subject to the 1933 Securities Act process, which requires the submission of Form 19B-4 detailing how the underlying market is resistant to abuse. SEC Chair Gary Gensler has previously stated his preference for a bitcoin futures ETF over an ETF that directly tracks the asset. A futures ETF is one that buys or sells a contract representing the future value of an asset (in this case, cryptocurrency). The contract includes a promise to buy or sell cryptocurrency at some point in the future, shielding investors from the inherent volatility of cryptocurrencies. If people believe that the price of bitcoin will rise, the futures contract will be costly. The futures market is governed by the 1940 Investment Company Act, which does not necessitate the filing of Form 19B-4.

    Some are dissatisfied with SEC rejections, but there is still hope.

    Several spot ETFs have been rejected by the SEC, including those from WisdomTree, One River Asset Management, VanEck, NYDIG, and Fidelity. However, according to Bloomberg Intelligence, a proposed SEC rule change to redefine exchanges could result in the approval of some ETFs by mid-2023. “Once crypto exchanges are compliant, the SEC’s primary reason for denying spot bitcoin ETFs will no longer be valid,” James Seyffart and Eric Balchunas wrote on March 24, 2022. Gensler’s reluctance to approve spot ETFs is directly related to the uncertainty over which agency would be in charge of various aspects of the industry, including exchanges.

    However, some major industry players are growing impatient, with Grayscale’s CEO Michael Sonnenshein going so far as to say that his company is considering filing a lawsuit if the SEC rejects their application for a bitcoin ETF.

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