An important U.S. regulator raises concerns about ‘fraudulent and manipulative acts and practices.’
Cathie Wood took a hit on Friday when the U.S. Securities and Exchange Commission (SEC) turned down an application for a spot bitcoin exchange-traded fund EFT from the star investor’s Ark 21Shares.
Basically, the firm wanted the market watchdog to approve spot exchange-traded funds, or ETFs, based on actual bitcoin holdings.
‘Protect Investors and the Public Interest’
Cboe BZX Exchange filed an application to allow for a rule change, but the SEC said that BZX did not meet its burden under the Exchange Act and the Commission’s Rules of Practice, and “in particular, 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 said it had concluded that ” the record does not support a finding that the bitcoin market is inherently and uniquely resistant to fraud and manipulation.”
“Additionally, the continuous nature of bitcoin trading does not eliminate manipulation risk, and neither do linkages among markets, as BZX asserts,” the ruling said.
The SEC also said that “any concerns related to preventing fraud and manipulation related to spot bitcoin ETPs would ‘apply equally’ to the spot markets underlying the futures contracts held by a Bitcoin Futures ETF.”
ARK Invest and 21Shares U.S. LLC joined forces last year to launch Ark 21Shares. The application was delayed several times, most recently in January.
Wood has been a big bitcoin and cryptocurrency bull for a while.
‘Bro, SEC is Jaded and Sad’
In October, ARK Next Generation Internet ETF updated its prospectus to say that it may gain exposure to Bitcoin or other cryptocurrencies through “exchange-traded funds domiciled in Canada.”
Canada approved its first bitcoin spot ETFs, a year ago.
Reaction on social media to the SEC’s decision was mostly hostile.
“The earlier they realize this is a wrong decision, the better,” one person tweeted.
“of course…. they gotta protect investors what a joke,” another said.
“Bro, SEC is jaded and sad,” another person commented. “Do they provide insight to why rejected? If they could just say we will accept this so all these companies can put one together in right format we can move forward in life.”
Converting their bitcoin funds into spot ETFs would enable U.S. digital-asset-management firms to preserve their edge in cryptocurrency investing as other companies seek to make similar moves.
Pioneers of digital-asset management have long been the few options for investors seeking exposure to bitcoin via the stock market. But that changed when the SEC authorized futures ETF on bitcoin.
The SEC approved ProShares Bitcoin Strategy ETF (BITO) – Get ProShares Bitcoin Strategy ETF Report, the first U.S. bitcoin-linked exchange-traded fund in October.
This decision and the approval of bitcoin spot ETF in Canada and Brazil make American firms fear that they would fall behind.
Grayscale Lawsuit…?
In December, the SEC rejected two proposals to offer physically-backed Bitcoin exchange-traded funds.
A month earlier, the SEC rejected Cboe BZX Exchange’s proposal to list the country’s first bitcoin exchange traded fund, VanEck Bitcoin ETF.
Regulators shut down proposals from Valkyrie Investments and Kryptoin on similar concerns regarding fraud.
Grayscale Investments wants to convert its Grayscale Bitcoin Trust (GBTC) – Get Grayscale Bitcoin Trust Report into a bitcoin spot exchange-traded fund.
On Monday, CEO Michael Sonnenshein said Grayscale would consider a lawsuit as part of its response if the SEC rejects the filing, according to Bloomberg.
Separately, Ark Innovation (ARKK) – Get ARK Innovation ETF Report was downgraded to “negative” from “neutral” late Thursday by Morningstar analyst Robby Greengold.
The analyst said the fund has recorded a “wretched” 45.5% loss over the past 12 months through February and is now saddled with even more risk following her move to reduce the portfolio to 35 stocks from 60, while growing its exposure to stocks in which ARK Investment Management in the biggest investor.
