SEC rejects ARK 21Shares Bitcoin spot ETF for the third time but provides a solution as well

• The SEC stated that the surveillance agreement with Cboe BZX Equities exchange is only limited to Bitcoin futures contracts.
• The SEC stated that the surveillance agreement could be disregarded if the exchange takes the onus of preventing fraud and manipulation.
• As it is, the SEC is already facing a lawsuit at the hands of Grayscale, which sued the agency for the same reason.

Bitcoin spot exchange-traded funds (ETF) have been a demand in the crypto market for a very long time, and a few who still want it are consistently failing.

This is because the overseeing Securities and Exchange Commission (SEC) fears possible fraud and misdirection. However, the first noticed among the music box.

SEC rejects another Bitcoin ETF

In the early hours of January 26, the SEC’s rejection of the ARK 21 Shares spot BTC ETF triggered a dialogue in the community. The Bitcoin ETF was set to be listed on the equities exchange Cboe BZX. According to the SEC, another proposal as such was already rejected in April 2022. 

The reason behind this would be the lack of regulation in the stock market. The Ark Investment Management and 21Shares managed ETF was designed to fulfill the needs of an SEC-approved ETF. However, the underlying condition still stands to be the asset being spot.

Ark and 21Shares further stated that the ETF could be listed on Cboe BZX as it has the technology necessary to avoid fraud and manipulation.

However, the SEC stated that the surveillance sharing agreement between Cboe BZX Equities Exchange and the Chicago Mercantile Exchange (CME) did not apply to spot Bitcoin but only to Futures contracts.

However, the SEC stated that it is not necessary for an exchange to have a surveillance-sharing system. This condition is acceptable only if the exchange has some other means of preventing fraud and manipulation.

Since no exchange has been able to fulfill this condition, the SEC has rejected Bitcoin spot ETFs.

SEC vs. Grayscale

While this is the third time ARK Investment Management and 21 shares have faced SEC’s rejection, Grayscale decided to do something about it over the last few months.

The investment management company filed a lawsuit against the Commission.

In the latest brief filed against SEC, Grayscale noted that the agency had exceeded its authority. Grayscale further stated that both Bitcoin Futures and spot Bitcoin and their indices have a 99% correlation, making the “fraud and manipulation” excuse invalid.

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