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The SEC disapproved the proposed rule change by
Cboe BZX (“BZX”) to list and trade shares of the Wise
Origin Bitcoin Trust under BZX Rule 14.11(e)(4)
(“Commodity-Based Trust Shares”). The SEC concluded that
BZX has not met its burden to demonstrate that its proposal is
consistent with requirements to prevent fraudulent or manipulative
acts.
BZX argued that a variety of means are available to prevent
fraudulent and manipulative practices. BZX asserted that, due to
slow transaction speeds and the capital needed to manipulate the
prices, such manipulation is challenging and unlikely. The SEC
disagreed, saying the record does not support such claims. The SEC
also asserted that BZX failed to contest the presence of other
sources of fraud and manipulation raised by the Commission in
previous orders.
Commentary
As a practical matter, given the size of the Bitcoin market, the
number of sophisticated traders who watch that market, and the
absence of inside information, the market for Bitcoin is inherently
much less susceptible to manipulation than the market for many
other securities. It seems that SEC Chair Gary Gensler simply does
not want to approve the listing of a Bitcoin exchange-traded fund
(“ETF”). It is not likely that some new surveillance tool
is going to change his decision. Change will have to come through
some exogenous event, such as political or public pressure.
The SEC’s unwillingness to approve for listing even a
plain-vanilla Bitcoin ETF is also evidence as to why no digital
asset entrepreneur is likely to visit the SEC and request approval
for any regulatory exemption or modification. There is no reason to
believe that there is any possibility of a favorable
action. See generally Cabinet Commentary: The Securities Law Treatment
of Utility Tokens.
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