SEC Not Ready for Riskier Bitcoin ETF Filings


Direxion agreed to a request from Security and Exchange Commission to withdraw its application for an ETF that would short Bitcoin futures. The withdrawal comes after Valkyrie dropped its leveraged ETF filing as the regulators directed it.

Circumstances Surrounding ETF Filings

US regulators recently warmed up to Bitcoin futures-backed exchange-traded funds. However, the SEC indicates a laxity towards embracing the more complex derivatives-based funds. This is evident from its request to withdraw two proposals that had been filed.

Direxion ETF Filings with SEC

Direxion, a financial service provider, fished out its request on Tuesday to launch the Direxion Bitcoin Strategy Bear ETF. The famous leverage ETFs supplier had tabled the proposal on Oct. 26, 2021. However, the SEC requested its withdrawal on the same day as indicated in the records.

Similarly, Valkyrie, the second issuer to launch a US Bitcoin futures ETF last month, had withdrawn its file earlier. Valkyrie had applied for the Valkyrie XBTO Levered BTC Futures ETF. Accepting the proposal would mean that the company would deliver 1.25 times the reference price of Bitcoin. According to a filing, the SEC had also requested Valkyrie remove the filing on Oct. 26.

Bitcoin ETFs Journey

Source: CoinDesk

The first US Bitcoin ETFs were launched in October 2021. The launch occurred a decade after the submission of the first filing. SEC Chair Gary Gensler had given hopes that they were ready to accept the filings. They would support the idea since the funds would only track future Bitcoins and not physically acquire cryptocurrency.

Contrary to Gensler’s signals, the regulators may not be ready to support new crypto ETFs yet. This analysis is according to an intelligence at Bloomberg. “While it does seem a bit inconsistent given their acceptance of the Bitcoin futures markets, it isn’t surprising and is likely part of a ‘baby steps’ regulatory mindset,” Eric Balchunas, a Bloomberg Intelligence analyst, said about the SEC’s request. “I bet we will see one someday, but only when they feel ready.”

Why Are the Regulators (SEC) Stopping ETF Filings?


Early October, Chair Gensler had announced that the SEC was developing new rules to govern leverage funds. His father directed for caution as he termed the funds’ potential risk factors. The regulators’ decision at this moment indicates that they are not only reconsidering cryptocurrency but probably diverse digital currency market platforms.

The SEC has stated that some ETPs use strategies and structures more complex than typical stocks and bonds. For example, products such as “leveraged ETFs” and “inverse ETFs” can pose an imminent risk to individual factors.

What Next?

Although Direxion has finally given in to the appeal by the SEC board to withdraw, it has undoubtedly taken time. As described earlier, the team of regulators had made this plea the same day Direxion had filed its proposition.

For now, we are set in anticipation of the next move by the regulators and the leverage companies. We are following keenly to identify the team’s loopholes and the rules they will put in place to counter.