SEC rejected Cboe’s bid to list the Wise Origin Bitcoin Trust

SEC disapproves the proposed listing

The U.S. Securities and Exchange Commission on January 27, 2022 disapproved Cboe BZX Exchange’s proposed rule change to list and trade shares of the Wise Origin Bitcoin Trust. The Fidelity-affiliated product would have held bitcoin rather than bitcoin futures, making the decision an important test of whether a spot bitcoin investment vehicle could enter the regulated U.S. exchange market.

The precise regulatory action matters. The Commission did not issue a general prohibition on bitcoin funds or decide whether bitcoin had value. It rejected file SR-CboeBZX-2021-039 because, in the SEC’s assessment, BZX had not met its burden under Section 6(b)(5) of the Securities Exchange Act of 1934. That provision requires exchange rules to be designed to prevent fraudulent and manipulative practices and protect investors and the public interest.

BZX originally filed the proposed rule change on May 10, 2021. The SEC published notice on June 1, extended its review on July 13, instituted proceedings on August 23 and extended the decision period again on November 15. BZX submitted an amendment on December 27, but the Commission deemed it untimely and said it would not have changed the conclusion even if considered on time.

What the trust would have done

The proposed trust’s objective was to track bitcoin through the Fidelity Bitcoin Index PR, less expenses and other liabilities. Its assets generally would have consisted of bitcoin held by Fidelity Digital Asset Services. The index was designed to calculate a U.S.-dollar bitcoin value from eligible spot platforms, while the trust’s net asset value would have been calculated once on each exchange trading day.

That structure distinguished the proposal from the bitcoin-futures funds already trading in the United States by January 27, 2022. Contemporaneous coverage identified ProShares’ BITO, Valkyrie’s BTF and VanEck’s XBTF as products using bitcoin futures. Wise Origin instead proposed direct bitcoin holdings, placing the quality and oversight of the underlying spot market at the center of the SEC’s review.

Why surveillance remained the barrier

BZX and the product sponsor argued that growth in Chicago Mercantile Exchange bitcoin futures, increasing spot-market liquidity and the proposed index methodology reduced manipulation concerns. BZX and CME were both members of the Intermarket Surveillance Group, giving the exchanges the equivalent of a comprehensive surveillance-sharing agreement.

The SEC nevertheless found that the record did not establish CME bitcoin futures as a regulated market of significant size in relation to the proposed product. In particular, the Commission said BZX had not demonstrated that someone attempting to manipulate the trust’s shares would probably also need to trade CME bitcoin futures. It also found the submitted evidence insufficient to show that other safeguards could replace the significant-market test.

The order therefore continued the divide visible in U.S. policy on January 27, 2022: futures-based bitcoin exposure had reached national securities exchanges, but a product holding spot bitcoin had not cleared the Commission’s fraud-and-manipulation analysis. The ruling prevented this proposed listing; it did not outlaw private bitcoin ownership, resolve bitcoin’s broader legal classification or establish that every future application would receive the same result.

Limits and later context

No bitcoin price, return, trading-volume or fund-flow claim is used here, so no causal inference is made about the market response to the order. Crypto trading is continuous and venue-specific, and a price move alone could not establish that the SEC decision caused it.

As later context, the Commission approved proposed rule changes for several spot bitcoin exchange-traded products, including the Fidelity Wise Origin Bitcoin Fund, on January 10, 2024. That later decision does not alter what was knowable on January 27, 2022: the 2021 Wise Origin proposal had been disapproved under the evidentiary record then before the SEC.