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Market manipulation, the reason why the SEC denied all BTC ETFs

The Securities and Exchange Commissions (SEC) of the United States has recently rejected the last derivative-backed Bitcoin exchange-traded funds (ETFs) pending for a decision, which makes a total of 9 non-approved proposals on the last week.

And the reason – according to Jake Chervinsky, a government enforcement defense and securities litigation attorney for Kobre Kim LLP – is found on the fear the SEC has for the manipulation and fraud the crypto market is susceptible of.

Gemini’s hyped attempt

While the Winklevoss twins’ attempt to get an ETF approved was met with hype back in that moment (in part for the confidence the twins had in its proposal to be the first one receiving the green light), the Commission ultimately rejected it, arguing that the market’s inability to resist any kind of manipulation due to its reliance on a single exchange – Gemini, owned by the Winklevoss siblings – to set the value of a Bitcoin ETF posed a high risk.

Such risk is explained in the fact that the aforementioned exchange has the potential to lead billions of dollars in new capital into the market, so even if it is as strictly regulated as Gemini is, the SEC did not find it suitable enough for their approval.

ETF based on a regulated market

Flaws in ProShares and Direxion proposals

Now, when ProShares and Direxion went to give it a try, they ensured that their proposals were backed by even more strictly regulated CBOE and CME futures market to mark the value of their ETFs. However, the SEC rejected them as well, this time arguing that BTC futures markets are still too small for allowing an ETF to base its value on.

In this regard, Chervinsky explained:

“So why did the SEC reject all these ETFs? Basically, the decision came down to the risk of market manipulation & fraud. The SEC can only approve an ETF that is ‘designed to prevent fraudulent and manipulative acts and practices.’ In the SEC’s view, these ETFs were not.”

Furthermore, he asserted that the SEC is aware of the fact that the majority of the trading is being carried out on unregulated markets and other crypto-exchanges, and since both CBOE and CME are unable to “provide enough info about the ‘identity of market participants’ on unregulated spots and derivative markets”, the governmental entity was not convinced of giving them the good-to-go.

Not all is lost

Despite the blurring panorama ahead for Bitcoin ETFs proposals, it does not mean that any future attempt will be futile. Given a more strict transaction monitoring by an ETF based on a significantly large regulated market, it may be possible to see one of these finally approved to be available in US markets.

In the meantime, it should be important for the crypto market in general not to overreact to these kind of news, for any subsequent rejection will not change the current status of the crypto industry.

Carlos Teodoro
Cryptocurrency enthusiast and everything they represent, Carlos is responsible for writing articles, creating images and belongs to the Crypto Economy team since 2017. He is also in charge of the commercial department, social networks and the revision of translations. Carlos continues to train every day to become an expert in the blockchain.
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