SEC rejects Valkyrie, Kryptoin spot Bitcoin ETF proposals

The US Securities and Exchange Commission (SEC) rejected on December 23 two proposals by Kryptoin and Valkyrie investment firms for spot Bitcoin exchange-traded funds (ETFs). Rejecting Bitcoin spot-ETFs, the SEC has also disapproved of any creative products such as leveraged or inverse futures backed ETFs.

The most remarkable year for cryptocurrencies yet is coming to an end, and there seems to be no spot Bitcoin ETF in sight for American investors. The US Securities and Exchange Commission has continued its tussle with the investment product, as it disapproved the applications for two more much-awaited ETFs earlier today.

According to orders published by the financial watchdog, the physically-backed Bitcoin ETFs proposed by Valkyrie and Kryptoin were rejected on the same grounds cited during earlier rejections.

Significantly, the SEC noted that NYSE Arca and Cboe BZX Exchange, the exchanges which had filed to propose rule changes to list and trade Valkyrie and Kryptoin products respectively, “failed to demonstrate that their proposals are consistent with the requirements of Exchange Act Section 6(b)(5).”

The Commission further explained that this included, 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 in October approved two Bitcoin futures-based funds, the ProShares Bitcoin Strategy ETF and the Valkyrie Bitcoin Strategy ETF, which made their Wall Street debuts the same month.

However, the regulator has yet to accept a spot Bitcoin ETF application. Last month, the SEC rejected an application to create a spot Bitcoin fund from VanEck, and on December 17, delayed a decision on a similar proposal from Grayscale Bitcoin Trust.

A decision is set to be ruled by the SEC about Anthony Scaramucci’s Skybridge Bitcoin ETF before January 22, while Fidelity’s Wise Origin Bitcoin Trust is due to be decided upon before January 27.

ETFs are investment tools that track baskets of stocks and have become popular due to their lower fees. For example, a Bitcoin ETF, which provides exposure to the digital currency, aims to save the hassle of buying the cryptocurrency from an exchange and managing the private keys.

Industry groups and stock exchanges have long sought to gain approval from the SEC on these products. However, rejecting Bitcoin spot-ETFs proposed by VanEck and WisdomTree over the past month, the SEC has also disapproved of any innovative products such as leveraged or inverse futures backed ETFs.

Democratic SEC Chair Gary Gensler and investor advocates, however, worry about what they see as a lack of regulatory oversight and surveillance, which heightens the potential for fraud and manipulation, they have said.