SEC stayed staff rejections of nine proposed bitcoin ETFs for Commission review

The U.S. Securities and Exchange Commission placed three staff-level decisions covering nine proposed bitcoin exchange-traded products under Commission review on August 23, 2018, staying disapproval orders issued one day earlier.

Letters signed by SEC Secretary Brent J. Fields addressed proposed products bearing the ProShares, Direxion and GraniteShares names. Each letter said the Division of Trading and Markets had disapproved the relevant exchange rule change under delegated authority on August 22. Each also notified the listing exchange that the Commission would review that action under Rule 431 of its Rules of Practice and that the disapproval order was stayed until the Commission ordered otherwise.

The intervention mattered because it corrected a widespread shorthand surrounding the August 22 decisions. The nine proposals had not been rejected through a vote of the full Commission. They had been rejected by SEC staff exercising authority delegated by the agency. The August 23 letters moved the proceedings back to the commissioners without deciding their merits.

Nine products in three proceedings

The ProShares proceeding concerned the proposed ProShares Bitcoin ETF and ProShares Short Bitcoin ETF, which NYSE Arca sought permission to list. A second NYSE Arca proceeding covered five Direxion products: Daily Bitcoin Bear 1X Shares and Daily Bitcoin Bull products targeting 1.25, 1.5 and two times daily exposure, plus Daily Bitcoin Bear 2X Shares. The Cboe BZX proceeding covered the GraniteShares Bitcoin ETF and GraniteShares Short Bitcoin ETF.

These were proposed futures-linked products, not funds holding bitcoin directly. Their planned strategies depended principally on bitcoin futures and related derivatives. That distinction is important: the proceedings tested whether exchanges could satisfy securities-market listing standards around products linked to a developing derivatives market, rather than whether the SEC would authorize direct custody of bitcoin in a conventional fund structure.

The underlying August 22 orders focused on Section 6(b)(5) of the Securities Exchange Act, including requirements designed to prevent fraudulent and manipulative practices and protect investors. In the ProShares order, staff found that the record did not establish a surveillance-sharing agreement with a regulated bitcoin-related market of significant size. Although NYSE Arca could share information with the CME and Cboe Futures Exchange, the order said the record did not demonstrate that their bitcoin-futures markets met that significant-size test.

A stay was not an approval

The August 23 action changed the proposals’ procedural status, not the SEC’s stated concerns. Staying the staff orders did not authorize a listing, permit trading or indicate how the commissioners would ultimately vote. Nor did it establish that bitcoin markets were resistant to manipulation. It meant only that the delegated disapprovals would not operate while the Commission reviewed them.

That distinction carried institutional significance. An exchange-traded bitcoin product was viewed as a possible bridge between cryptocurrency markets and brokerage accounts governed by established securities-market infrastructure. Review by the commissioners therefore preserved a pathway—without guaranteeing an outcome—for products that could have expanded regulated access to bitcoin-linked exposure.

Reuters reported that BTC/USD on Luxembourg-based Bitstamp was about $6,480 and nearly 2% higher at its August 23 reporting snapshot after the letters appeared. That observation is limited to one venue and an unspecified intraday comparison window. It does not establish that the SEC letters caused the move, and it should not be treated as a market-wide closing price.

What remained unresolved

As of August 23, the central unanswered question was whether the full Commission would affirm, modify or set aside the three staff decisions. The record supported renewed review, not approval. Investors and issuers still faced the same unresolved questions about surveillance, manipulation and the relationship between bitcoin spot trading and regulated futures markets.

The durable event from the date is consequently narrow but important: nine proposed bitcoin-futures products returned to an active Commission-level process after their staff disapprovals were stayed.