The Bitcoin ETF Dream May Be Further Away Than Ever

On Thursday, The Securities and Exchange Commission announced that it would delay a decision on a proposed rules change that would allow creation of the SolidX Bitcoin Shares Exchange Traded Fund (ETF) proposed by SolidX and the investment firm VanEck jointly with the Chicago Board Options Exchange (CBOE). The SEC now must issue a final up-or-down decision by February 29, 2019.

While it’s not an outright rejection, the decision continues a string of SEC moves unfavorable to putting a bitcoin-backed vehicle on a traditional public stock exchange. The first big effort on that front was spearheaded by the Winklevoss twins, whose request for a similar rules change was first rejected in March of 2017. A revised Winklevoss proposal was again rejected in July of this year.

In both of those rejections, the SEC specified that the decision didn’t reflect any judgment of the utility or value of bitcoin, but instead, what they see as the failure of the proposals—and by extension, the crypto marketplace more generally—to “prevent fraudulent and manipulative acts and practices.” In a late November appearance at the Consensus: Invest conference, SEC Chair Jay Clayton added some color to that judgment, blaming cryptocurrency exchanges that don’t have sufficient safeguards against market manipulation for denial of the ETF.

The real-world results of crypto’s anti-establishment ethos are what’s blocking a “mainstream” ETF.

There’s been a widespread assumption among crypto advocates that approval of a bitcoin ETF would bring in a new wave of institutional and individual investors and, in turn, give some juice to the struggling crypto markets. Of 1,600 comments received by the SEC regarding the current proposal, the largest portion of them seem in favor of it.

Support of an ETF is in several kinds of ironic conflict with what are widely regarded as core blockchain principles, such as decentralization, direct control of your money, and skepticism of the finance establishment. More to the point, the real-world results of crypto’s anti-establishment ethos are what’s blocking a “mainstream” ETF. Blockchain has enabled the rise of global, unregulated crypto exchanges, and they’ve faced relatively little pushback from users for their lack of transparency. Frequent speculation about manipulation through exchanges like BitMEX and Bitfinex haven’t pushed those companies to substantially change or clarify their practices.

The latest SEC announcement is an extension to give regulators “sufficient time to consider” revising ETF rules. But, for better or for worse, there’s little chance crypto-anarchy will suddenly start self-reforming in the next two months, so that it can integrate into mainstream finance.