The relatively expected has come true. The Securities and Exchange Commission continues to deny applications for spot bitcoin ETFs, even as enthusiasm for futures ETFs flourishes.
The SEC rejected VanEck’s request, filed in December 2020, to create a spot bitcoin ETF, to be traded on Cboe Global Markets Inc. VanEck’s exchange-traded fund approval deadline for cash bitcoin would expire on November 14, 2021, according to the rules.
Many cryptocurrency enthusiasts were hoping that with the approval of the Bitcoin Futures ETF last October, the Bitcoin Spot ETF could be approved. Naysayers, on the other hand, don’t think approval could come until 2022.
Spot ETFs are governed by the Securities Act of 1933, which requires exchanges to file a Form 19b-4 and demonstrate that the underlying market is not subject to abuse. Futures ETFs, on the other hand, are governed by the Investment Company Act of 1940 and are not subject to the filing of a similar form or regulation.
SEC Chairman and former CFTC Chairman Gary Gensler approved the launch of the first bitcoin futures ETF in late October, which began trading on October 19. It also accepted ETFs based on futures contracts, as they are traded on well-regulated exchanges, and the Commodity Futures Trading Commission oversees this activity at the federal level.
Why are cash ETFs always rejected?
Gensler has expressed reluctance to endorse spot bitcoin ETFs because there is no legislation defining which regulatory agencies have control over areas of the crypto industry, such as exchanges. The Securities and Exchange Commission has raised concerns that a product based on the spot price of bitcoin may violate securities rules because the market is subject to abuse.
An ETF tracks the performance of an underlying asset or group of assets and exposes investors to those assets, even if the investors do not own the assets. A futures ETF involves buying or selling a contract that represents the future value of a cryptocurrency. The contract contains an agreement to buy or sell the cryptocurrency at a future date. Futures contracts are thus protected from the notorious volatility of cryptocurrencies. If people believe that the price of bitcoin will go up, the price of these futures will be high. The value of a bitcoin futures ETF is determined by the price movement of the futures contracts. These futures contracts are traded on the Chicago Mercantile Exchange.
July 2021 marks the eight years since the Winklevoss twins Cameron and Tyler filed with the Securities and Exchange Commission for approval of the first bitcoin ETF, the Winklevoss Bitcoin Trust. His application has been rejected twice by the SEC. Other companies that have filed unsuccessful claims in the past include ProShares, Direxion and GraniteShares, Bitwise, Wilshire Phoenix, and WisdomTree. Personally, I think we will see the approval of a spot bitcoin ETF over the next year.
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