Crypto enthusiasts in the US have made many attempts to obtain SEC’s approval to launch exchange-traded BTC derivatives, which can then be offered to private investors, but all the last were unsuccessful. It is worth recalling how the SEC refused or postponed a positive decision several times, citing poor price discovery, market manipulations, extreme volatility, and the lack of proper oversight by regulators. This short list of reasons for rejection was typical of early applications, for example, the Winklevoss Bitcoin Trust in 2016 and the SolidX Bitcoin Trust and ETF from Grayscale Investments in 2017. Later, the SEC softened its position, firstly, adding a disclaimer to the official response that refusals are not motivated by the evaluation of practical or investment value of BTC. Secondly, a split had already begun in the SEC ranks - some committee members criticised the consensus that critics of the applications center upon the flaws of the Bitcoin market, bypassing, for example, the applicant’s ability to specify the contract in such a way as to ensure liquidity or lack of manipulation, or the applicant’s ability to control the market with its product.
The "advantage of the first move" in the market, which has already demonstrated an unprecedented for exotic assets capitalisation (almost $1 trillion at its peak), the favour of individual members of the SEC commission, did not give rest to financial innovators in the US and in 2019 it appears that they found a loophole.
Van Eck Securities Corp. and SolidX Management LLC plan to begin selling shares of the limited crypto ETF on Thursday. Companies used the rule SEC144A, which allows for the public placement of securities unregistered with the SEC (same status as with shares of the crypto-ETF). In general, this is a felony - unregistered securities can only be sold through private placement (for example, a company sells shares to its employees) and their subsequent resale should only occur after notification to the SEC. Amendment 144A allows for public offering of unregistered securities but only to qualified investors (banks, credit and savings unions, investment and insurance companies), which presumably have more information and experience to determine fair value of a risky product.
Important note: For unregistered securities either sold through private or public offering, there is a holding period: in the case of private placement this is at least two years, in the case of public offering for qualified investors (as in the case of our crypto-ETF) - 6 months.
In other words, by purchasing the shares of this crypto ETF, a qualified investor will be required to “remain an investor” for at least 6 months. Will this scare away qualified investors with the current unpredictability of the Bitcoin market? Time will tell and more importantly sale volumes. From the point of view of the signal function, this will speak of the medium-term expectations of the “whales”, as the investment is forced to continue for 6 months.
In my opinion, from the point of view of progress in the legalisation of Bitcoin, this crypto ETF has minimal consequences, since the crypto-ETF shares were not approved (registered) by the SEC. But from viewpoint of the expectations of big players, the dynamics of trade will be very useful and worth tracking.
Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.