The SEC Just Denied Ark 21Shares Bitcoin ETF for the Second Time – Here’s Why

The US Securities and Exchange Commission (SEC) has yet again refused to give its regulatory blessing to Ark Investment Management and exchange-traded note (ETN) issuer 21Shares to list a spot bitcoin (BTC) exchange-traded fund (ETF).

According to the document published on January 26, the SEC discussed the Cboe BZX Exchange on which the ETF would be listed and stated that, 

“The Commission concludes that BZX has [failed to] demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), which requires, in relevant part, that the rules of a national securities exchange be “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest.””

It went on to say that, when considering whether the proposal by the exchange to list and trade these shares is designed to prevent fraudulent and manipulative acts and practices, the SEC used the same analytical framework it had previously used when assessing if an exchange looking to list an exchange-traded product (ETP) can meet its obligations under Exchange Act Section 6(b)(5).  

An exchange that lists bitcoin-based ETPs can meet its obligations under this Act, said the Commission, by demonstrating that it has “a comprehensive surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference bitcoin assets.”

And while surveillance-sharing agreements are not the only way for a listing exchange of a commodity-trust ETP to meet its obligations, said the document,

“Where, as here, a listing exchange fails to establish that other means to prevent fraudulent and manipulative acts and practices will be sufficient, the listing exchange must enter into a surveillance-sharing agreement with a regulated market of significant size because such agreements detect and deter fraudulent and manipulative activity.”

The SEC goes on to say that BZX asserts that its proposal is consistent with Section 6(b)(5) of the Exchange Act because: 

• the exchange has a comprehensive surveillance-sharing agreement with a regulated market of significant size;
• there are other means to prevent fraudulent and manipulative acts and practices that are sufficient to justify dispensing with the detection and deterrence of fraud and manipulation provided by a comprehensive surveillance-sharing agreement with a regulated market of significant size related to spot bitcoin.

However, the Commission argued that BZX did not show sufficient other means to prevent fraudulent and manipulative acts and practices for the SEC to change its mind.

It also concluded that BZX has not established that it has a comprehensive surveillance-sharing agreement with a regulated market of significant size related to spot bitcoin, adding that,

“BZX repeats various assertions made in prior bitcoin-based ETP proposals, including in the Previous ARK Filing, that the Commission has previously addressed and rejected, including in the prior ARK 21Shares Order – and more importantly, BZX does not respond to many of the Commission’s reasons for rejecting those assertions.”

The SEC had already rejected an application filed by investment products provider 21Shares and Ark Invest, the fund led by the well-known investor Cathie Wood, back in April, 2022. The duo filed another application in May. The SEC pushed the deadline to approve or disapprove ARK 21Shares’ ETF several times last year. 

Also last year, 21Shares said it was partnering with asset manager ByteTree Asset Management to launch a combined bitcoin and gold ETP called the 21Shares ByteTree BOLD ETP (BOLD), listed on the SIX Swiss Exchange. 

Meanwhile, as reported, the crypto-focused ETF market saw a topside push in 2023 amid a surge in cryptocurrency prices. By mid-January, the 14 top-performing ETFs were all tied to digital assets, excluding leveraged products, out of about 2,000 funds tracked by Bloomberg, which noted that crypto funds were dominating the $6.8 trillion ETF market.

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