SEC Rejected Valkyrie and Kryptoin Spot-Bitcoin Listing Proposals

The U.S. Securities and Exchange Commission on December 22, 2021 disapproved two exchange rule changes that would have allowed the Valkyrie Bitcoin Fund and Kryptoin Bitcoin ETF Trust to list as securities holding bitcoin directly. The paired orders kept the agency’s barrier to a U.S. spot-bitcoin exchange-traded product intact even after bitcoin-futures funds had begun trading in October.

NYSE Arca had filed the Valkyrie proposal on April 23, 2021. Cboe BZX had filed the Kryptoin proposal on April 9. Each exchange needed the SEC to approve a rule change before shares could trade; the December 22 orders denied those listing requests.

What the proposed products would have held

The Valkyrie trust was designed to hold only bitcoin, with its net asset value calculated once each exchange trading day from a CME CF benchmark methodology. Its proposal contemplated daily disclosure of bitcoin holdings and an intraday indicative value updated every 15 seconds during the exchange’s core session.

Kryptoin’s trust likewise proposed assets consisting principally of bitcoin held by a custodian. Each share would represent a fractional beneficial interest in those holdings, and the trust generally did not intend to hold cash or cash equivalents. These were therefore spot-bitcoin structures, not funds holding cash-settled bitcoin futures contracts.

That distinction mattered in December 2021. Two bitcoin-futures funds—the ProShares Bitcoin Strategy ETF and Valkyrie Bitcoin Strategy ETF—had made their U.S. market debuts in October. The new orders showed that the arrival of futures-based exposure had not resolved the SEC’s separate concerns about exchange products tied directly to spot bitcoin markets.

The SEC applied its market-surveillance test

The Commission centered both decisions on Section 6(b)(5) of the Securities Exchange Act. That provision requires a national securities exchange’s rules to be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest.

The exchanges argued that bitcoin markets, benchmark design and their surveillance arrangements supplied adequate protection. The SEC disagreed. It found that neither exchange had demonstrated alternative means sufficient to dispense with a comprehensive surveillance-sharing agreement with a regulated market of significant size related to bitcoin.

Cboe BZX and CME were both members of the Intermarket Surveillance Group, giving BZX the equivalent of a surveillance-sharing agreement with CME. But the Commission said the record did not establish that CME’s bitcoin-futures market was a market of significant size for the proposed spot product. Growth in CME futures volume and open interest, by itself, did not prove that someone manipulating the proposed shares would also have to trade on CME. The agency also found the submitted price-discovery evidence mixed or incomplete.

The legal conclusion was narrower than a finding that bitcoin itself had no value. Both orders expressly said the disapprovals did not rest on whether bitcoin or blockchain technology had utility or investment value. The failure was evidentiary: the listing exchanges had not carried their burden under the Exchange Act.

What December 22 established

The decisions closed these two proceedings rather than merely extending their deadlines. They did not prohibit owning bitcoin, halt the futures ETFs already trading, or decide every future spot-bitcoin proposal in advance. A sponsor could return through another filing, but any new record would have to address the statutory problems identified by the Commission.

For institutions, the immediate consequence was a continued split in regulated access. Brokerage customers could obtain bitcoin-linked exposure through futures funds, while proposed products designed to hold bitcoin directly remained unable to list. No event-day bitcoin price or return is asserted here: the orders establish a regulatory decision, while a continuously traded global asset has no single universal daily close and the available record does not isolate a causal market reaction.