SEC reviewing Bitcoin ETF denial. Will it make a difference?

Bitcoin ETFs are back in the spotlight. 

Just days ago, the SEC announced a re-examination of last month’s decision to reject a Bitcoin ETF application, and the firm that filed it is already making plans to submit further research and commentary to bolster its case. 

The SEC published a notice over the weekend stating that it was reviewing its decision to reject Bitwise Asset Management’s Bitcoin ETF application. It has also opened up the application to comments for a period of one month. But the order disapproving the Bitcoin ETF application remains in effect until the agency has completed its review. 

More Bitcoin research for the SEC?

San Francisco-based Bitwise had filed for a Bitcoin ETF application at the beginning of this year. The firm marshaled substantial research, including a much-cited report claiming that 95% of all trading on cryptocrypto exchanges was fake, to support its application. In its order rejecting the application last month, the SEC made clear that it remained unconvinced that bitcoin markets were not manipulated.

SEC not convinced a "real" Bitcoin market exists, denies Bitwise Bitcoin ETF

The SEC has rejected the Bitcoin ETF proposal from Bitwise Asset Management, snuffing out the last chance for the debut of a Bitcoin ETF at an exchange in 2019. After refusing several applications over the years, the SEC outlined its concerns regarding Bitcoin ETFs in a January letter last year. In response, Bitwise produced extensive research and made presentations to SEC staff to convince them about the readiness of crypto markets for an ETF. But the federal agency’s order rejecting the filing...

But Bitwise remains undeterred and may take the research route once again. Matt Hougan, Director of Research at the firm, told Decrypt that the agency’s issues and concerns from last month contained proposals for new avenues of research. “We’re currently discussing what additional commentary and data we can provide in the 30-day window,” he said.

A divergent take

Whether additional comments and research will convince the SEC still remains an open question. The agency’s stance has provoked sharp and, often, diverging opinions among members. Jake Chervinsky, general counsel at Compound—an open-source protocol for building financial applications, does not lay much hope that the review process will bring changes to the SEC’s stance.

Chervinsky had earlier expressed skepticism during a conversation with podcaster Laura Shin that the agency would approve a Bitcoin ETF application under the current chairman. But Bitwise CEO Hunter Horsley was optimistic in another episode of the same podcast. “[O]ur experience of the staff and commissioners has been that they’re open-minded,” he said. Horsley also pointed to Chairman Jay Clayton’s recent comments that progress has been made in the crypto ecosystem. 

Nick Cowan, CEO of the Gibraltar Stock Exchange, said an upholding of the rejection might still contain lessons in the long run. “When we finally have an approved ETF, perhaps this decision by the SEC will be viewed as a turning point for a more positive approach towards digital assets as an emerging and viable asset class,” he said.

There are some, however, who are not holding their breath for the approval of a Bitcoin ETF.

Charles Phan, CTO of Interdax, said an ETF could be a centralizing force in Bitcoin because it concentrates holdings of the cryptocurrency in the hands of institutional investors. “It effectively leaves investors without their keys, and this is diametrically opposed to the concept of decentralization that underpins Bitcoin,” he said. 

An ETF is a product aimed at institutional investors “late to the crypto party,” according to Phan.