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US SEC Shoots Down Latest Bitcoin ETF, Commissioner Crypto-Mom Dissents on Ruling

The US Securities and Exchange Commission (SEC) has rejected yet another bid for a bitcoin-based exchange-traded fund (ETF), this time from New York-based financial service providers, Wilshire Phoenix.

A filing posted on Feb. 26 revealed that the SEC had concluded that Wilshire Phoenix had not provided enough evidence that the bitcoin market was resistant to market manipulation.

As stated in the filing,“The Commission concludes that NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be ‘designed to prevent fraudulent and manipulative acts and practices’ and ‘to protect investors and the public interest.

Wilshire Phoenix, an emerging asset management firm and partner to Coinbase Custody,first applied for the ETF last summerwith NYSE Arca.

SEC Commissioner Dissents on Ruling

SEC Commissioner Hester Peirce wrote that “the Commission applies a unique, heightened standard under Exchange Act Section 6(b) to rule filings related to digital assets” in a dissenting statement in response to the latest Bitcoin ETF rejection.

Peirce highlighted parameters that were set and heavily scrutinized in the SEC’s processing and ultimate rejection of Bitwise’s Bitcoin ETF application,that had not been applied to traditional markets offering.

Peirce wrote, “This line of disapprovals leads me to conclude that this Commission is unwilling to approve the listing of any product that would provide access to the market for bitcoin and that no filing will meet the ever-shifting standards that this Commission insists on applying to bitcoin-related products—and only to bitcoin-related products.”

The SEC has rejected all previous bitcoin ETF proposals filed to date.

Crypto Mom Wants Safe Harbor

Despite well-documented uncertainty between separate regulatory bodies on how to classify digital assets, within the US blockchain and crypto space, the SEC has maintained that digital assets likely fall under US securities laws. The SEC has punctuated this stance through enforcement against high profile projects like Telegram and EOS provider, Block.One who was fined 24 million dollars for its ICO offering.

SEC Commissioner, Hester Peirce has been a breath of fresh air to the sector and has earned the moniker of “Crypto-Mom” for her bold attitude towards digital innovation.

As reported by Blockchain.News, Peirce recently doubled down on her previous suggestion to provide decentralized network developers a safe harbor and has now submitted a formal draft proposal.

The safe harbor proposal recommends that a three-year reprieve from securities law should be granted to developers and projects that can demonstrate they are raising funds and making progress towards an open-source network. These projects will be required to make full disclosures regarding their raised funds to the public.

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Grayscale Partners with NYSE Arca to File for Spot Ethereum ETF Conversion

On October 2, 2023, NYSE Arca and Grayscale Investments took a significant step in the regulated crypto investment landscape by filing Form 19b-4 with the SEC. The aim is to convert Grayscale Ethereum Trust (OTCQX: ETHE) into a spot Ethereum ETF. “As we file to convert ETHE to an ETF, the natural next step in the product’s evolution, we recognize this as an important moment to bring Ethereum even further into the U.S. regulatory perimeter,” said Michael Sonnenshein, CEO of Grayscale Investments.

Grayscale Investments, the world’s largest crypto asset manager, has a long-standing commitment to providing regulated and transparent crypto investment options. The company has been methodically transitioning each of its 17 digital asset products through a four-phase lifecycle, with the ultimate aim of converting them into ETFs. David LaValle, Grayscale’s Global Head of ETFs, emphasized, “This filing is another important milestone as Grayscale continues to build its best-in-class ETF team, product suite, and capabilities.”

As of the latest data, the Grayscale Ethereum Trust holds nearly $5 billion in assets under management (AUM), accounting for 2.5% of all Ether in circulation. The trust has a daily trading volume in the millions of dollars and is held by over 250,000 American investor accounts. Unlike futures-based ETFs, a spot Ethereum ETF will invest directly in the underlying Ether asset, offering investors a more direct form of exposure to the cryptocurrency.

Grayscale is not the only asset manager seeking SEC approval for a spot Ethereum ETF. Firms like Invesco and Galaxy Digital have also submitted similar filings. Additionally, Grayscale is awaiting SEC approval to convert its Grayscale Bitcoin Trust (GBTC) into an ETF, following a court victory over the SEC this past summer. This competitive landscape indicates a growing interest in regulated crypto investment vehicles, which could potentially reshape the U.S. crypto market.

Grayscale Investments, Founded in 2013, is the world’s largest crypto asset manager, offering a range of 17 regulated and future-forward investment products. The company has a proven track record and deep expertise in the crypto asset management space.

NYSE Arca Files Proposed Rule Change for Bitwise Ethereum ETF Listing

NYSE Arca, a self-regulatory organization, has submitted a proposed rule change to the Securities and Exchange Commission (SEC) to list and trade shares of the Bitwise Ethereum ETF. The proposed rule change was filed on March 28, 2024, and is now open for public comment.

Under the proposed rule change, the Bitwise Ethereum ETF would be listed under NYSE Arca Rule 8.201-E, which specifically covers Commodity-Based Trust Shares. These shares represent investors’ discrete identifiable and undivided beneficial ownership interest in the commodities deposited into the trust.

The Bitwise Ethereum ETF, operating as a Delaware statutory trust, aims to provide exposure to the value of ether held by the Trust, with its investment objective focused on tracking the performance of ether. The Trust will establish its Net Asset Value (NAV) at the end of each business day based on the CME CF Ether Reference Rate – New York Variant (Pricing Index). The Pricing Index is designed to provide a reference rate for the U.S. dollar price of one ether, using the same methodology as the CME CF Ether Reference Rate.

The Trust’s assets will primarily consist of ether and cash. It will not hold any non-ether crypto assets and has explicitly disclaimed ownership of such assets. Coinbase Custody Trust Company, LLC will act as the Ether Custodian, while Bank of New York Mellon will serve as the Cash Custodian, Administrator, and Transfer Agent for the Trust.

The proposed rule change and the operation of the Bitwise Ethereum ETF are outlined in detail in the filing, which can be accessed on the NYSE Arca website, at the Exchange’s principal office, and in the Commission’s Public Reference Room.

Interested parties and stakeholders are invited to submit comments on the proposed rule change to the SEC. The regulatory body will carefully consider these comments as part of its review process.

In conclusion, NYSE Arca has filed a proposed rule change to list and trade shares of the Bitwise Ethereum ETF, which aims to provide exposure to the value of ether. The Trust will rely on the CME CF Ether Reference Rate to establish its NAV and operate as a Delaware statutory trust with designated custodians for ether and cash holdings. The SEC is now accepting public comments on the proposed rule change.