What to Make of the SEC's Latest Bitcoin ETF Rejection

The SEC rejected the latest bitcoin ETF proposal last week, though it wasn't entirely unexpected.

Legal experts say a bitcoin ETF could be years away - because, in the eyes of regulators, the bitcoin market is too small and immature to support a fund right now.

The SEC suggested that a surveillance-sharing agreement between a regulated exchange and a bitcoin market of "Significant" size might help allay its unease.

The SEC worries about the bitcoin market because of the potential for manipulation, said Lindsay Danas-Cohen, general counsel and chief operating officer at crypto exchange and brokerage Velocity Markets.

A former SEC senior counsel, said Bitwise did not explain how the exchanges with "Real" volume were insulated from the prices found on other platforms.

"The SEC once again strongly rejected the idea that a bitcoin ETF sponsor can satisfy Exchange Act Section 6(b)(5) without entering surveillance-sharing agreements with regulated markets of significant size, and given bitcoin's current market structure, it's very unlikely that any sponsor will be able to enter such agreements within the next couple years."

It seems unlikely that the SEC will approve an ETF for launch in the near future.

"It's reasonable to assume that Jay Clayton's SEC will never approve a bitcoin ETF," he added on Twitter.

The SEC chairman has long been an outspoken skeptic of the bitcoin market, saying as recently as last month that sponsors and companies applying for an ETF have work to do addressing issues such as market manipulation.

"Under the current regime, I think it's going to be difficult for an applicant to get all its ducks in a row in a manner that would give the SEC comfort. I think it would take a bit longer for the SEC to wrap their arms around the space."