SEC rejected VanEck's Bitcoin ETF proposal over fraud concerns

On November 12, 2021, the U.S. Securities and Exchange Commission (SEC) rejected VanEck's proposal for a bitcoin-backed exchange-traded fund (ETF). The decision was based on concerns about potential fraud and market manipulation in the largely unregulated cryptocurrency markets. This marks another setback for U.S. investors hoping for a spot bitcoin ETF, even as similar products are already available in Canada and Europe.
 

The SEC cited specific issues such as "wash trading," where the same entity is on both sides of a trade to create a false impression of market activity, and potential price manipulation by large bitcoin holders known as "whales." The agency also raised concerns about manipulative activities involving the stablecoin Tether, further complicating the approval process.
 

Despite the rejection, the launch of the first bitcoin futures-based ETFs, such as the ProShares Bitcoin Strategy ETF (BITO), has shown significant investor interest, amassing $1.4 billion in assets shortly after its debut. This indicates a strong appetite for regulated investment products offering exposure to bitcoin.
 

VanEck's CEO, Jan van Eck, expressed disappointment but reaffirmed the company's belief in the need for a regulated bitcoin investment product. The Grayscale Bitcoin Trust, a private trust holding physical bitcoin, remains a popular option with a market capitalization of $36 billion.
 

The SEC's ruling underscores the regulatory challenges facing the cryptocurrency industry, with SEC Chair Gary Gensler previously describing the sector as the "Wild West" rife with fraud and abuse. The agency maintains that a spot bitcoin ETF would not adequately protect investors from these risks, making its approval unlikely in the near future.