What Will It Take to Get Approval?

Following the Chicago Board Options Exchange withdrawing its proposal for VanEck/SolidX Bitcoin ETF earlier in September, the ETF filing from Bitwise Asset Management and NYSE Arca was turned down by the Securities and Exchange Commission on Oct. 9.

Investment management firm Kryptoin Investment Advisors, with the former World Gold Council executive Jason Toussaint at the helm of the effort, turned in an initial registration statement to the SEC for a Bitcoin ETF. This latest submission may prove to be the latest in a series of fruitful attempts to convince the regulator to accept an ETF - or will it? What will it take for the commission to finally give the go-ahead for a crypto ETF, and is the new proposal up to par?

In serving as assets underlying ETFs, both Bitcoin and gold differ from stocks of publicly traded companies, as they place additional regulatory scrutiny in terms of price discovery on the spot exchanges where they are traded.

The regulatory challenges faced by ETFs backed by gold and Bitcoin are in many ways similar: In both cases, the SEC first wants to get a solid grasp of what is going on in the underlying markets.

What the SEC wantsOne of the regulator's major concerns when evaluating new commodity-based ETFs is establishing whether the underlying market is resistant to manipulation, in accordance with Section 6(b)(5) of the Securities Exchange Act.

The act outlines an alternative route by which an ETF can win approval: Showing that the listing exchange has entered a "Comprehensive surveillance-sharing agreement with a regulated market of significant size."

What are the odds?Most of the crypto finance professionals who have spoken to Cointelegraph on the matter were skeptical that any of Bitcoin ETF's short-term prospects would win the SEC's approval.

"Though Bitwise is well known for analyzing 'real' exchange volume, the SEC noted that many of the exchanges used by the proposed Bitwise ETF are not regulated in the US. For instance, Binance, the largest platform identified by Bitwise as real, with 39% of the 'real' volume, is not registered with either FinCEN or NYSDFS.".

"A regulated market for reliable pricing, proper market surveillance of exchanges to avoid market manipulation, and exceptional qualified custodians to ensure proper security and storage of the assets. The market has matured significantly over the past few years and is reaching a tipping point that should allow investors to see the approval of a Crypto ETF as early as next year."

Tara Bogard, senior vice president of business development at the independent qualified custodian Kingdom Trust, said that it can take some time for an ETF to be approved, since, "Before the SEC can or will approve a crypto ETF, the need to first focus on generalized cryptocurrency regulation is necessary."