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SEC Begins Evaluation of NYSE Proposal to List Bitcoin ETFs

In March 2018, the U.S. Securities and Exchange Commission (“SEC”) announced that it will begin proceedings to determine whether it will permit a NYSE Arca rule change proposal to list and trade two bitcoin-related exchange traded funds (ETFs). 1  In its review, the SEC will seek to determine the rule’s consistency with the Securities Exchange Act of 1934.  Specifically, the SEC seeks to determine whether the rule complies with the requirement that “national securities exchange rules be designed to ‘prevent fraudulent and manipulative acts,’ promote just principles of trade, and protect investors.” 2

The SEC’s order marks a possible shift in its stance towards cryptocurrency and associated investment vehicles.  In 2017, the SEC rejected listing of two proposed ETFs that would own Bitcoin directly, including one proposal from Cameron and Tyler Winkelvoss. 3  In its decision, the SEC cited lack of transparency and oversight in the global digital currency market. 4  The two ETFs that are the subject of the SEC’s current review are designed to alleviate the SEC’s previously mentioned concerns.  The ETFs, managed by commodity pool operator ProShares Capital Management LLC, will invest in bitcoin futures contracts rather than directly in bitcoin. 5  These futures contracts were first listed last December on both the Chicago Board Options Exchange (“CBOE”) and the Chicago Mercantile Exchange (“CME”) and are regulated by the Commodity Futures Trading Commission (“CFTC”). 6

The CBOE has been a particularly vocal supporter of bitcoin and other cryptocurrency related ETFs.  In a letter addressed to the SEC last month, the CBOE stated that the SEC should approach these ETFs from the same perspective that it has historically approached commodity-related ETFs. 7  The CBOE further stated that “the Commission should not stand in the way of [cryptocurrency ETFs] coming to market.”8  The CBOE’s position is that all of the SEC’s concerns related to cryptocurrency ETFs can be adequately addressed through the existing framework for commodity-related funds. 9

It remains to be seen whether the shift by ETFs from holding bitcoin to trading bitcoin futures contracts will receive a stamp of approval from the SEC.  The SEC order issued last month announced that it was seeking public comment on a range of issues including the potential impact of manipulation in the underlying bitcoin markets that would affect the proposed ETFs’ net asset value (“NAV”) and the potential risks of price manipulation and fraud in the underlying bitcoin trading platforms. 10  Under its new chairman, Jay Clayton, the SEC has taken a hawkish stance toward products and conduct that could potentially hurt retail investors so it’s not surprising that the SEC is carefully scrutinizing the details of these new bitcoin ETF proposals. 11

Regardless of the SEC’s ultimate decision on the permissibility of the ETFs in question, there are other options available to investors seeking to invest in cryptocurrency-related products or funds.  Coinbase, the most popular cryptocurrency exchange in the United States which recently surpassed Charles Schwab in number of customer accounts, has recently launched an index fund. 12  The Coinbase Index Fund, which has a $1.6 billion valuation, invests in the same cryptocurrencies traded on Coinbase and its institutional exchange GDAX–currently, Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. 13  However, the fund will only be available to accredited investors or those who have annual income of at least $200,000 or a net worth of at least $1 million. 14.  Coinbase hopes to launch a cryptocurrency ETF available to retail investors in the near future, but it will likely face the same SEC headwinds as the previously rejected bitcoin ETFs.  Another option for those seeking to gain exposure to the cryptocurrency markets is to invest in funds launched earlier this year that track the stocks of companies involved in blockchain and other distributed ledger technologies that underpin cryptocurrencies15

With the SEC soliciting public comment on the proposed rule change to list the two bitcoin futures contract ETFs, its decision could possibly be delayed for months. 16  The SEC’s ultimate decision will likely have far-reaching implications for the future of cryptocurrency-related funds and the underlying cryptocurrency markets.


  1. See Tom Zanki, SEC Launches Deliberations on NYSE Plan For Bitcoin ETFs; Law360 (Mar. 26, 2018), https://www.law360.com/articles/1026109/sec-launches-deliberations-on-nyse-plan-for-bitcoin-etfs

  2. Id. 

  3. See Dave Michaels & Asjylyn Loder, SEC Pours Cold Water on Prospect of Bitcoin ETFs, Wall Street Journal (Jan. 19, 2018, 7:42 AM), https://www.wsj.com/articles/sec-rejects-idea-of-bitcoin-etfs-1516323558

  4. See id. 

  5. Zanki, supra note 1. 

  6. See Michaels & Loder, supra note 3. 

  7. See Evelyn Cheng, Cboe encourages SEC to allow bitcoin ETFs, CNBC (Mar. 27, 2018, 11:16 AM), https://www.cnbc.com/2018/03/27/cboe-encourages-sec-to-allow-bitcoin-etfs.html

  8. Id. 

  9. Id. 

  10. See Zanki, supra note 1. 

  11. See Michaels & Loder, supra note 3. 

  12. See Jen Wieczner, Coinbase Eyes Bitcoin ETF With New Cryptocurency Index Fund, Fortune (Mar. 6, 2018), http://fortune.com/2018/03/06/coinbase-bitcoin-cryptocurrency-fund/

  13. See id. 

  14. Id. 

  15. See Owen Walker, SEC drags feet on approving bitcoin ETFs, Financial Times (Feb. 4, 2018), https://www.ft.com/content/7db2933c-e40a-11e7-a685-5634466a6915

  16. See Zanki, supra note 1. 

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