SEC shoots down another BTC spot ETF, cites manipulation and fraud risks

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The U.S. Securities and Exchange Commission (SEC) has rejected yet another BTC spot ETF application, this time from Fidelity Investments. This was the sixth spot ETF that the regulator has turned down since November, once again citing concerns over the extent of price manipulation and fraud in the BTC market.

In its filing, the securities watchdog shot down Cboe BZX Exchange, Inc, which had filed to trade shares of Fidelity’s Wise Origin Bitcoin Trust, a BTC spot ETF. 

“This order disapproves the proposed rule change,” the SEC stated, adding that Cboe had not met the SEC’s requirements, 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 regulator once again cited the risk of market manipulation and fraud in the digital asset ecosystem as its biggest concern with a BTC spot ETF. 

🚨 BREAKING: Here we go again. #SEC denies yet another #Bitcoin Spot ETF. The reasons are the same, including the possible manipulation of price using #stablecoins such as #Tether! #Retweet pic.twitter.com/bklDkb2zaH

— WallStreetPro (@wallstreetpro) January 27, 2022

In order to get the SEC’s nod, any company that wants to list a digital asset spot ETF must prove that it has a “comprehensive surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference bitcoin assets,” SEC said in the filing. 

This surveillance-sharing agreement provides a necessary deterrent to manipulation and makes it possible to investigate suspected manipulation cases if they occur, the SEC added.

The only time that the SEC would consider approving an ETF without the agreement would be if the underlying market inherently possesses a unique resistance to manipulation beyond the protections that traditional markets rely on, and BTC doesn’t. 

In its statement, Fidelity said it was disappointed but refuted the SEC’s claims that the BTC market isn’t ready for a spot ETF.

“While we are disappointed by the outcome of the SEC’s deliberations resulting in today’s disapproval order, we reaffirm our belief in market readiness for a physical Bitcoin exchange-traded product and look forward to continued constructive dialogue with the SEC,” the financial services behemoth, which has $4.2 trillion in assets under management, stated.

Since it first rejected VanEck’s BTC spot ETF proposal in November last year, the SEC has shot down five others, now including Fidelity’s. Other casualties include SkyBridge Capital, Wisdom Tree, Valkyrie, and Kryptoin. 

SEC Commissioner Hester Peirce has criticized the latest rejection, as she has done with all the others. Speaking at an event recently, she said that the SEC is unfairly rejecting the applications despite the continued adoption of digital asset products.

Watch: SEC Commissioner Hester Peirce on Bitcoin Association’s Blockchain Policy Matters