The Securities and Exchange Commission (SEC) has once again pushed off its decision on the VanEck SolidX Bitcoin Exchange Traded Fund (ETF). Many Bitcoin ETF applications have been reviewed by the SEC, but its tendency is to delay making a decision then issuing an outright rejection once the maximum time limit is reached. The SEC says it will approve or reject the VanEck SolidX Bitcoin ETF on Feb. 27.
Crypto lawyer Jake Chervinsky accurately predicted the delay in a July 2018 Tweet.
0/ It kills me to tweet about SEC rulemaking procedures, but given the confusion on #crypto twitter today, it feels necessary.
TL;DR — the SEC can, and probably will, delay its decision on the VanEck/SolidX commodity-backed #bitcoin ETF until ~February 21, 2019.
— Jake Chervinsky (@jchervinsky) July 24, 2018
It is unfortunate that the VanEck SolidX Bitcoin ETF seems to be on track toward rejection since it is one of the only physical Bitcoin ETFs proposed so far. Physical means that the VanEck SolidX Bitcoin ETF is backed by actual Bitcoins, and therefore, when people invest in the ETF, it will increase Bitcoin’s spot market demand and price. The expectation is a physical Bitcoin ETF would have major positive impact on Bitcoin, since it would be available on all the major stock trading platforms, making it easy for institutional investors to diversify into Bitcoin.
The only other physical Bitcoin ETF that has been proposed — the Winklevoss Bitcoin Trust — was rejected in July. This does not bode well for the VanEck SolidX Bitcoin ETF, since the SEC said it rejected the Winklevoss Bitcoin Trust because the Bitcoin market is easy to manipulate as well as a lack of surveillance. Essentially, the SEC wants to directly ‘observe’ all of the internal data of major Bitcoin exchanges and regulate them as well, or it will not approve a Bitcoin ETF. Most Bitcoin exchanges are overseas and would certainly not give up their rights to privacy to help support the launch of a United States Bitcoin ETF, so what the SEC is asking is probably impossible.
Apparently, the SEC is deaf to the 1,400 comments on the VanEck SolidX Bitcoin ETF that were posted by September, over 99 percent of which were positive. At that time, the SEC asked commentators to answer a lengthy 18-question exam within 21 days, and each question had numerous sub-questions. Since then, according to the most recent SEC statement, another 200 comments have rolled in. The SEC has not officially acknowledged the public outcry to approve the VanEck SolidX Bitcoin ETF, which shows a real disconnect between what the people want and what the SEC is willing to do.
The crypto space needs to be careful when crying out for a Bitcoin ETF, since the SEC may eventually oblige this demand with a cash-settled Bitcoin ETF. That would have the opposite effect of what people expect from a Bitcoin ETF.
A physical Bitcoin ETF would be quite beneficial for the Bitcoin market, but a cash-backed Bitcoin ETF would act as a deadly poison to the crypto space. If the SEC approves a cash-backed Bitcoin ETF before a physical Bitcoin ETF, it would divert tremendous amounts of capital away from the spot markets, while simultaneously printing large amounts of paper Bitcoins. This would cause the Bitcoin market to be suppressed long term.