SEC Denies VanEck Bitcoin Spot ETF for Third Time; commissioners are dissenting

The US Securities and Exchange Commission (SEC) has once again rejected VanEck’s proposal for a Bitcoin spot ETF, according to a March 10 filing.

SEC rejects VanEck Bitcoin ETF

The relevant filing indicates that the SEC has rejected a rule change under which the Cboe BZX Exchange intended to list VanEck’s exchange-traded funds (ETFs).

The SEC rejected the proposal less than a year after it was first presented on June 24, 2022. The regulator previously rejected similar proposals for a VanEck Bitcoin spot ETF in 2021 and 2017. It also delayed a decision on the product several times.

The core issue, according to the SEC, is that ETF providers have not demonstrated that they can prevent market manipulation. Specifically, these providers have not demonstrated that they have a surveillance sharing agreement with a market of significant size.

The SEC has also rejected competing proposals from other firms such as Wisdomtree, ARK Invest and Valkyrie Investments on almost identical grounds.

Commissioners disagree

Although the SEC’s reasoning has been used repeatedly, two SEC commissioners ⁠— Hester Peirce and Mark Uyeda ⁠— criticized the regulator’s decision today.

They noted that it has been six years since the SEC rejected the first application for a spot Bitcoin exchange-traded fund or exchange-traded product (ETP).

Although the SEC claims it applies the same rules to other ETP proposals, Peirce and Uyeda say the rules for Bitcoin spot ETPs are actually “uniquely onerous.”

In particular, they argue that the SEC’s rules for determining a “substantial” market generally apply to a particular trading venue, not an overall market. They also say that the SEC applies a two-pronged test: first, whether someone attempting to manipulate the market must also trade in the relevant market for surveillance measures to be effective, and second, whether ETP trading will have a dominant influence on prices in that current market. These criteria are only applied to crypto products, they say.

Peirce has previously voiced criticism of the agency’s stance, and as such, her latest dissent may not affect future decisions around ETF approvals.

Elsewhere, Grayscale’s decision to challenge the SEC in court over the proposed ETF conversion could help that company win approval, depending on the outcome.