Some people believe that the SEC is on the verge of approving the CBOE VanEck SolidX Bitcoin ETF. Anonymous sources claim that approval is imminent and that it may happen at any time between now and the end of the year. These assumptions are based on conversations held between executives of the CBOE, VanEck, SolidX and representatives of the SEC. There are also strong beliefs that the CBOE proposal fulfills all the requirements set forth by the SEC for a Bitcoin ETF. Failure to meet these basic requirements was cause for the disapproval of previous applications like that of the Gemini exchange in July. Also fueling speculation of approval is the departure of SEC’s commissioner Kara Stein in December. She is a strong critic of premature confirmation of any crypto ETF. However, celebrations may be a bit unwarranted as claims that the proposal meets the SEC’s conditions for approval are thin and insufficiently supported.
Representatives of the proponents met with SEC’s commissioners including “crypto-friendly” Elad Roisman. During their meeting on October 23, they presented a document supporting their claim that meets all SECs pressing concerns. The manuscript details that there are “significant regulated and relevant derivatives market for Bitcoin (CBOE, futures, and OTC desks). And that the formation of these markets brings a large pool of money that guarantees liquidity. Also, that price manipulation concerns have been mitigated in the CBOE rules which will surveil for potential manipulation of shares. And that the fund promotes investor protection through a $125 million insurance. The advocates of the fund also argue that the VanEck SolidX Bitcoin Trust provides for the most stringent regulatory compliances. And it offers its extensive experience with storage, fair trade, clearing, settling, and facilitating transaction of securities as protection for investors.
The basic objections by Commissioner Stein are price manipulation, fraud, investor protection, physical custody, and liquidity. And though convincing the CBOE’s argument is, the basic premise of previous disapproval still remain: price manipulation and fraud. The written statement advocating approval does not sufficiently detail how the CBOE will mitigate price manipulation. Or how the trust fund plans to eliminate, prevent, or contain cryptojacking or other evolving form of fraud. Mrs. Stein also questions how the fund can “get accurate valuations” during volatile price swings. These issues are not properly addressed in the document presented and while they exist, it is likely that this ETF will also be rejected.
It is fair to say that the paper presented by the fund’s representatives is impressive as it includes many solutions to creating a stable securitized crypto fund; among them, insurance, custody, and liquidity. However, time and time again, the volatility of the market has shown its lack of consistency. And its susceptibility to outside influences like news, FOMO, or investor’s sentiments. Not to mention theft or hacks. All these combine to create instability that would prove fatal to a potential 30 trillion crypto securities market. So far, the best description of the current situation is that it is a work in progress. The CBOE is clearly working hard to achieve compliance in order to get an SEC approval. Unfortunately, a number of problems remain unsolved and it will take time to solve them.
Some are pinning their hopes of approval in a less resistant replacement to Mrs. Stein after she vacates her position in December. But even an all crypto friendly commission will not take away from the existing facts. That without controlling or eliminating manipulation and introducing invulnerable security, the ETF will not be ready for approval.