What an SEC Bitcoin ETF Rejection Review Really Means

The U.S. Securities and Exchange Commission (SEC) announced Thursday that nine bitcoin exchange-traded fund (ETF) disapproval orders are to be stayed until further review.

Referencing Rule 431 of the Commission's Rules of Practice, the SEC said in a series of letters that it would reconsider the three rejections made by the U.S. regulator's staff.

But what does it mean when the Commission says it will "review" the disapproval orders? And what implications does that decision have for the proposed bitcoin ETFs themselves?

According to the Rules of Practice, the Commission may effectively "affirm, reverse, modify, set aside or remand for further proceedings, in whole or in part," which technically means the end of this batch of bitcoin ETFs is not final.

Jake Chervinsky, a defense and litigation lawyer for Kobre and Kim LLP, told CoinDesk the petition for review was likely "initiated by a member of the Commission" as no indication on the SEC's web page points to action taken by either of the two exchanges responsible for the ETF filings – the Chicago Board Options Exchange (Cboe) and New York Stock Exchange (NYSE).

In effect, it only takes the vote of one Commission member to start a petition for review, and as indicated in the Rules of Practice, once granted, "the Commission shall set forth the time within which any party or other person may file a statement in support of or in opposition to the action made by delegated authority."

With further commenting underway, as Chervinsky points out, the specific body responsible for gathering the additional information and ultimately setting the record straight is now the three SEC commissioners and Chairman Jay Clayton.

And, perhaps most notably, the SEC leadership only just recently issued a decision following a separate review of a past bitcoin ETF rejection for the proposal by investors Cameron and Tyler Winklevoss.

The Winklevoss bitcoin ETF was denied initially in March of last year, seemingly ending a multi-year effort to create a "physically" backed bitcoin fund into which investors could buy stakes.

After the SEC's staff pushed back against the idea, the Bats BZX exchange, which filed the proposed rule change allowing for the bitcoin ETF, petitioned for a review.

More than a year after the review began the SEC's commissioners came to the decision that the ruling to disapprove would not be overturned, affirming "BZX has not met its burden under the Exchange Act and the Commission's Rules of Practice to demonstrate its proposal is consistent with the requirements of the Exchange Act Section 6(b)(5)."

At the time, Commissioner Hester Peirce wrote a letter of dissent disagreeing with the outcome of the review.

Her arguments – that the SEC should be focused on disclosure rather than playing "gatekeeper" to the market – will likely be raised again during deliberations on the current set of bitcoin ETF proposals put forth by Direxion, GraniteShares and ProShares.

Past reviews have taken anywhere between six to 16 months, Chervinsky affirmed, and the Rules of Practice do not set a strict deadline for the SEC, making it "hard to predict" how long this particular review will take.

Chervinsky told CoinDesk:

Regardless, the announcement of the review was largely well-received by individuals such as GraniteShares CEO Will Rhind, whose firm is now among those waiting for a final answer from the SEC's highest ranks.

"It's a positive development and we look forward to engaging with the SEC commissioners on this matter," Rhind told CoinDesk.

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