Bitcoin ETF proposal being reviewed by the SEC and why its important.

Recently news has been going around that the U.S. Securities and Exchange Comission (SEC) will be reviewing and possibly approving a bitcoin backed Exchange Traded Fund (ETF). Here I'll discuss the actual proposal and some ideas of why they may approve or deny the proposal.

Lets take a look at who is making the proposal, what is being proposed, and how the SEC may or may not approve the proposal.

There are a few parties involved according to the filing:

• Van Eck Securities Corporation - Marketing Agent
• SolidX Management LLC - Sponsor
• Delaware Trust Company - Trustee
• The Bank of New York Mellon - Administrator, Transfer Agent, and Cash Custodian
• Foreside Fund Services LLC - Marketing Agent, Order Examiner

VanEck and SolidX will form a Trust which will issue what they call VanEck SolidX Bitcoin Shares. The shares will attempt to reflect the price of bitcoin plus the expenses of the Trusts operations. VanEck and SolidX will be responsible for the custody of the bitcoin. Shares will be issued only by the Trust in blocks of 5 called a Basket in exchange for cash. These shares are not FDIC insured. SolidX and BNY Mellon will issue and redeem baskets of shares with registered broker-dealers who have contracts with the SolidX and BNY Mellon. The ETF will trade on CBOEs BZX exchange with the symbol XBTC. The initial baskets were created at a price of ~ 25 bitcoin per share.

OK so what does it all mean? Essentially a partnership is formed between VanEck and SolidX where they create shares that represent interest in the Trust and the Trusts goals is to have the shares represent the value of bitcoin. The Trust will exchange baskets for Cash and in some cases and at their discretion exchange for bitcoin. Individual shares will not be redeemed by the Trust but are expected to be traded on the BZX exchange under the symbol XBTC.

Some important things to consider are that the Trust will be insured against lost or theft of bitcoin, however the insurance will not cover certain types of losses. Among others one of these loss types include losses occurring from a network failure of the Bitcoin protocol. The insurance will have a $500k deductible.

Some of the advantages for investing in the ETF listed by the proposal include:

• Ease and flexibility of Investment
• Insurance (as noted above)
• Increased diversification due to bitcoins low correlation to global equities, commodities, and fixed income.

How will the SEC view all this?

Not too long ago the Winklevoss twins proposed their own bitcoin ETF which was rejected by the SEC, so will this version by VanEck and SolidX be different? In the disapproval of the Winklevoss ETF the SEC said:

"The key requirement the Commission is applying here, however,is not that a futures or derivatives market is required for every ETP, but that—when the spot market is unregulated—there must be significant,regulated derivatives markets related to the underlying asset with which the Exchange can enter into a surveillance-sharing agreement."

At the time of the rejection I don't believe bitcoin futures had begun trading yet, but since they began late 2017 a regulated derivatives market for bitcoin is available and so the SEC may not have a requirement for a surveillance-sharing agreement. I have to admit I've really gotten into the weeds here and I can't say for sure if this is the case but based on their wording and my basic understanding it does seem reasonable that the requirement may no longer be necessary which would, in my opinion, increase the chance of this ETF being approved.

The SEC had released a rather lengthy analysis of why the Winklevoss ETF was rejected, unfortunately this post became a little longer than I wanted so I'm reluctant to start a thorough compare and contrast between the two.

Additionally the SEC is open to comments from the public on this ETF and so far it seems there is a good amount of support, see here.

Closing of the comment period for the SEC is around mid August and I would expect a decision not too long after that, perhaps late August or early September.

If you like you can read the filing for the VanEck SolidX Bitcoin ETF here

Also I encourage you to post your comments to the SEC on why you think the ETF should or should not be approved. If you find any wrong information or something I missed that you would like me to cover, please let me know in the comments below. Thanks for reading.