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The SEC disapproved the proposed rule change by Cboe BZX ("BZX") to list and trade shares of the Wise Origin Bitcoin Trust under BZX Rule 14.11(e)(4) ("Commodity-Based Trust Shares"). The SEC concluded that BZX has not met its burden to demonstrate that its proposal is consistent with requirements to prevent fraudulent or manipulative acts.
BZX argued that a variety of means are available to prevent fraudulent and manipulative practices. BZX asserted that, due to slow transaction speeds and the capital needed to manipulate the prices, such manipulation is challenging and unlikely. The SEC disagreed, saying the record does not support such claims. The SEC also asserted that BZX failed to contest the presence of other sources of fraud and manipulation raised by the Commission in previous orders.
Commentary
As a practical matter, given the size of the Bitcoin market, the number of sophisticated traders who watch that market, and the absence of inside information, the market for Bitcoin is inherently much less susceptible to manipulation than the market for many other securities. It seems that SEC Chair Gary Gensler simply does not want to approve the listing of a Bitcoin exchange-traded fund ("ETF"). It is not likely that some new surveillance tool is going to change his decision. Change will have to come through some exogenous event, such as political or public pressure.
The SEC's unwillingness to approve for listing even a plain-vanilla Bitcoin ETF is also evidence as to why no digital asset entrepreneur is likely to visit the SEC and request approval for any regulatory exemption or modification. There is no reason to believe that there is any possibility of a favorable action. See generally Cabinet Commentary: The Securities Law Treatment of Utility Tokens.
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