SEC Rejects Wilshire Phoenix Bitcoin-and-Treasury ETP

The Securities and Exchange Commission disapproved NYSE Arca’s proposed rule change for the United States Bitcoin and Treasury Investment Trust on February 26, 2020, preventing the Wilshire Phoenix-sponsored product from listing on the exchange under the proposed structure.

Release No. 34-88284 did not reject bitcoin as technology or declare the asset unlawful. It found that NYSE Arca had not carried its burden under Section 6(b)(5) of the Securities Exchange Act, which requires exchange rules designed to prevent fraudulent and manipulative practices and protect investors and the public interest.

The distinction mattered because the Commission was deciding whether NYSE Arca could list the shares—not whether bitcoin had value, whether every bitcoin transaction was manipulated or whether the trust’s separate Securities Act registration statement was effective.

A hybrid product designed around volatility

The proposed trust differed from a product holding only bitcoin. Its assets would have consisted of bitcoin and short-term U.S. Treasury bills with maturities of less than one year, apart from temporary dollar balances needed for transactions, redemptions, fees and expenses.

A rules-based index calculated by Solactive would have adjusted the allocation between bitcoin and Treasury bills monthly using bitcoin’s observed daily volatility. The shares were intended to reflect that Bitcoin Treasury Index, less liabilities and expenses. Wilshire Phoenix’s February 14 registration amendment listed a proposed annual sponsor fee of 0.68% of net asset value.

Coinbase Custody Trust Company was identified as the proposed bitcoin custodian, while UMB Bank would have held the Treasury and cash assets. Those arrangements described the planned product; they did not establish that shares had launched, accumulated assets or generated investment returns.

Market surveillance remained the barrier

NYSE Arca and the sponsor argued that the bitcoin market segment feeding the product’s reference rate was resistant to manipulation. They also relied on information-sharing connections involving NYSE Arca, CME and the spot platforms contributing to the CME CF Bitcoin Reference Rate.

The Commission was not persuaded. It concluded that the record did not establish a degree of resistance to manipulation beyond that found in traditional commodity or securities markets. It also found that NYSE Arca had not shown that a person attempting to manipulate the proposed product would probably trade in CME bitcoin futures.

The order further determined that NYSE Arca lacked bilateral surveillance-sharing agreements with the constituent spot platforms. The Commission did not accept those platforms as regulated markets comparable to national securities or futures exchanges, and it found that the record had not demonstrated that CME’s bitcoin futures market was a regulated market of significant size in relation to the proposed product.

These were findings about the evidence submitted for this particular exchange rule change. The order expressly left open the possibility that bitcoin-related markets or surveillance arrangements could develop enough for a future proposal to satisfy the Exchange Act.

Peirce challenged the Commission’s standard

Commissioner Hester Peirce dissented on February 26. She argued that Section 6(b)(5) required the Commission to examine the listing exchange’s rules rather than conduct what she considered a merits review of the underlying bitcoin markets.

Peirce also contended that the Commission was imposing an unusually demanding significant-market and surveillance test on bitcoin products. In her view, shared membership in the Intermarket Surveillance Group and the data-sharing obligations of the reference rate’s constituent exchanges provided a workable path for obtaining relevant information through CME.

Her statement represented one commissioner’s reasoning, not the Commission’s controlling conclusion. The operative result remained the disapproval order.

What February 26 established

The defensible event-date conclusion is narrow: NYSE Arca could not list the United States Bitcoin and Treasury Investment Trust under the proposal reviewed in Release No. 34-88284. The decision preserved the SEC’s market-surveillance barrier for this product while exposing an internal disagreement over whether that barrier followed the Exchange Act and precedent.

No event-day bitcoin return, trading volume or causal market reaction is asserted. Cryptocurrency traded continuously across multiple venues, and the regulatory documents alone cannot establish that the decision caused any particular price movement.