The Securities and Exchange Commission (SEC) has filed to postpone its decision on whether to approve or deny the Ark 21Shares Bitcoin ETF for listing on BZX.
This marks the agency’s first delay on the latest wave of Bitcoin spot ETF applications, possibly indicating a similar short-term fate for rival applicants.
Questions For the Public
In its Friday letter, the SEC said it seeks public comment on BZX’s application, which would list the very first Bitcoin spot ETF on a U.S.-regulated exchange.
“Institution of proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change,” wrote the SEC. “Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved.”
This is a STANDARD delay letter. There's some confusion but only the first few paragraphs of this letter are written by the SEC and its very standardized. The rest is just a copy paste of the 19b-4 application written by CBOE (& Ark/21Shares) There isnt much to read into here IMO pic.twitter.com/7HOMA6kLK4
— James Seyffart (@JSeyff) August 11, 2023
Firstly, the agency asked for the public’s thoughts on whether the proposed ETF would be protected from “fraudulent and manipulative acts and practices,” and whether the Bitcoin market is inherently susceptible to manipulation. This issue is central to the agency’s hesitancy in approving a Bitcoin spot ETF until this point.
In the past, ETF applicants have attempted to form surveillance-sharing agreements with the CME Bitcoin Futures market to meet the SEC’s market monitoring needs. However, between ARK’s previous applications as well as those from Grayscale, the SEC has contended that this market cannot meet its benchmark.
That’s what its second public question pertains to: “Do commenters agree with the Exchange that the CME, on which CME Bitcoin Futures trade, represents a regulated market of significant size related to spot bitcoin?” asked the SEC. The regulator specifically wishes to know it someone attempting to manipulate the Bitcoin market would necessarily have to trade on the CME.
The SEC’s last question touched on Coinbase – America’s largest spot Bitcoin exchange, and ARK’s newly preferred surveillance sharing partner. 8 rival applicants have named the same exchange in their most recent filings, following the footsteps of both Fidelity and BlackRock.
“Do commenters agree with the Exchange’s assertion that such an agreement with Coinbase would be “helpful in detecting, investigating, and deterring fraud and manipulation in the Commodity-Based Trust Shares”?” wrote the SEC.
After ARK, the next approval deadlines for rival Bitcoin spot ETFs are in early September, including BlackRock’s – but decisions on those applications can be similarly delayed.
ARK’s true final deadline at which the SEC can delay its decision no longer is on January 10. Given its virtually identical structure to competitors, ARK Invest CEO Cathie Wood expects that its approval will mean that of rival firms as well – and likely all at the same time.
Before that, Grayscale expects to receive a ruling in its lawsuit with the SEC by the end of September. Bloomberg ETF analysts predict that this lawsuit is still the most likely route to spot ETF approval.