The U.S. Securities and Exchange Commission (SEC) is reconsidering its position on cryptocurrency-backed securities, potentially clearing the path for several bitcoin-tracking exchange-traded funds (ETFs). The SEC has consistently denied approval to cryptocurrency ETFs, citing “significant investor protection issues” as the primary concern. Late last month, however, the SEC quietly approved a request from the New York Stock Exchange (NYSE) to begin a process that would allow those rules to be re-examined. Should the NYSE’s proposed rule changes be approved, cryptocurrency-related ETFs would only need to meet standard ETF oversight requirements for SEC approval.
The filing is a response to a set of ETFs submitted for SEC approval last year by securities firm ProShares. The SEC never issued a ruling on those ETFs, as ProShares withdrew their application following several high-profile failures by other firms. ProShares offers dozens of ETFs — from natural gas to emerging markets — and currently manages around $27 billion in assets. Given that many of those ETFs track markets that are on par with bitcoin in terms of price volatility, it’s not hard to see why the firm teamed up with the NYSE to push for a revision in the SEC’s rules.
The NYSE filing also comes on the heels of a letter from Chicago Board Options Exchange (CBOE) President Chris Concannon, which strongly advocated for the SEC to revise its stance on cryptocurrency ETFs. “While cryptocurrency-related holdings do raise a number of unique issues, CBOE firmly believes that such holdings do not require significant revision to the well-established frameworks for evaluation related to valuation, liquidity, custody, arbitrage, and manipulation,” Concannon wrote. Instead of lumping all such cryptocurrency-tied ETFs together, Concannon proposed that they be evaluated on a case-by-case basis, which is the typical SEC process.
The NYSE filing calls for a public hearing of the SEC’s rules under Section 19(b)(2)(B) of the 1934 Securities and Exchange Act. This gives the SEC 180 days to review the proposed changes, take public comment, and issue a ruling. While there is substantial pressure from self-regulated exchanges like the NYSE and CBOE to allow consumer-focused bitcoin ETFs, there is little evidence to suggest that SEC’s core position has changed. A likely scenario is that the SEC is signaling an interest in hearing more about how such offerings would meet regulatory and consumer-protection guidelines, and how exchanges such as NYSE would integrate such products.
Should those rules change, however, it would be a clear signal that the SEC’s position on bitcoin ETFs is becoming less severe. This could result in a wave of new cryptocurrency-backed ETF applications, and the likely future approval of several existing bitcoin ETFs applications. The SEC’s decision won’t be finalized until August, and the commission has an option to extend this deadline for another 90 days should it need additional time.