Clarifying the Bitcoin ETF Confusion and the Impending SEC Ruling

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Clarifying the Bitcoin ETF Confusion and the Impending SEC Ruling
Clarifying the Bitcoin ETF Confusion and the Impending SEC Ruling
As reported by CryptoSlate
Original Article Here

On August 10th, 2018, the SEC will announce their decision to either approve, deny or extend the decision-making period on Cboe/VanEck/Solid X’s Bitcoin ETF.

As that historic date rapidly approaches, both excitement and chaos regarding its details have ramped up. Here are a few conflicting or unclear stories circulating regarding proposed ETFs.

Outdated Quote

On July 24th, CoinDesk reported the SEC’s decision to delay a ruling on Direxion’s proposed Bitcoin ETFs from January 2018. In the article, they quoted Michael Cohn, the chief investment strategist at Atlantis Asset Management.

“That would be insane for them to actually approve this. Then they’re putting a rubber stamp on it as an asset, and I don’t think governments want to go there yet.”

While not a ringing endorsement for Bitcoin ETFs, it is essential to realize that this quote, given to CNBC, is from January 8th, 2018, regarding the Direxion proposal. Much has changed since and the Direxion ETF is not the proposal of most interest.

Different Cboe Proposal

Another confusing story circulating is the decision date of the SEC. While documentation states that the SEC will decide on Cboe’s Bitcoin ETF on September 15th, 2018, it is important to note that it is referring to CboeBZX-2018-001, which proposes to list and trade the shares of the GraniteShares Bitcoin ETF and the GraniteShares Short Bitcoin ETF.

This is different from the current Cboe proposal that has captured the attention of the fintech world,  garnered 210 public comments, and injected a rush of optimistic euphoria in crypto’s biggest bulls.

The proposal, that everyone is anxiously awaiting the outcome on, refers to CboeBZX-2018-040which seeks to list and trade shares of SolidX Bitcoin Shares (the “Fund”) issued by the VanEck SolidX Bitcoin Trust (the “Trust”) on the Cboe Exchange.

CboeBZX-2018-040 was released on June 26th, 2018. On page 53, it indicates to expect a decision to approve, disapprove, or extend the decision-making period within 45 days of the date of publication.

The partnership between Cboe, SolidX, and VanEck is significant to this proposal. SolidX is just one of the few major institutions to have previously filed for a Bitcoin ETF with the SEC while VanEck operates more than 70 ETFs and ETPs.

Together, the three companies offer a real chance of getting the first Bitcoin ETF approved.

To clarify once again, this Bitcoin ETF proposal, with the partnership between Cboe, SolidX and VanEck, is the one that everyone should keep their eyes on. All other decisions are secondary to this potentially monumental one set for August 10th.

I came around a very interesting theory on twitter from Jake Chervinksy, a lawyer that happens to know a thing or two about the SEC rights of delaying an official decision.

Here it goes:

It kills me to tweet about SEC rulemaking procedures, but given the confusion on crypto twitter today, it feels necessary.

TL;DR — the SEC can, and probably will, delay its decision on the VanEck/SolidX commodity-backed bitcoin ETF until ~February 21, 2019.

Some background: Unlike other types of funds (like mutual funds, closed-end funds, etc.), the federal securities laws did not originally provide for ETFs. As a result, ETFs have to obtain an individualized exemptive order from the SEC before going to market.

The timing of the ETF approval process follows a standard formula: – the ETF files a “proposed rule change” with the SEC; – the SEC posts notice of the filing in the Federal Register and solicits comments; and – the SEC has 45 days from posting to approve or deny the ETF.

Except the SEC doesn’t have to decide within 45 days. It can extend the deadline up to three times:
– 45 more days if “a longer period is appropriate”;
– 90 more days for the ETF to address grounds for disapproval; and
– 60 more days if again “a longer period is appropriate.”

This means the real deadline for the SEC to approve or deny an ETF is 240 days after it files notice in the Federal Register (45+45+90+60). Yet, because of how the law works, the SEC can’t just set a 240-day deadline from the jump. It has to do the extensions one at a time.

Today, the SEC extended its deadline to approve or deny the Direxion futures-backed bitcoin ETF by 60 days; the new deadline is September 21. This is the third & final extension allowed by law — 15 U.S.C. § 78s(b)(2), in case you were wondering.

Coindesk reported: “Notably, none of the ETF proposals being postponed are from VanEck and SolidX[.]” But this isn’t notable at all. The deadline to approve or deny the Direxion ETF was July 23. As explained, the SEC waits until the deadline before issuing another extension.

The SEC wasn’t making a decision about all of the pending bitcoin ETFs today; it was just handling the next step in the process for the Direxion ETF. It had absolutely no reason (or justification) to address the VanEck/SolidX ETF. The fact it didn’t do so is meaningless.

The SEC’s timing on the Direxion ETF is totally standard: – Notice originally posted on January 24;
– First extension issued on March 1 (~45 days later);
– Second extension issued on April 23 (~45 days later); and
– Third extension issued on July 24 (~90 days later).

So the standard timing for the VanEck/SolidX ETF would be:
– Notice was originally posted on June 26;
– First extension expected ~August 10 (45 days later);
– Second extension expected ~September 24 (45 days later); and
– Third extension expected ~December 23 (90 days later)

Add 60 days to December 23 and you get a final deadline of February 21, 2019. This could move forward or back by a few days (e.g., because December 23 is a Sunday and the SEC may be closed on December 24/25 too), but late February is the most likely target for a decision.

I understand if hopium has you thinking “okay, but just because the SEC *can* delay doesn’t mean it will.” Sure, that’s fine in theory. But I can’t imagine the SEC will approve the first ever bitcoin ETF without taking all the time allowed by law.

Sorry. Get ready to wait.

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