SEC Rejects BZX's Proposal to List Bitcoin Trust

The SEC rejected a proposed rule change by Cboe BZX Exchange to list and trade shares of a bitcoin-based exchange-traded product. The SEC concluded that the Exchange was unable to demonstrate that it would be able to detect or prevent fraud and manipulation in the product.

According to the SEC, under SEA Section 6(b)(5) ("Determination by Commission requisite to registration of applicant as a national securities exchange"), Cboe BZX Exchange is required to prove that it had established a “comprehensive surveillance-sharing agreement” to detect market manipulation with a regulated market that (i) classifies as a “significant market” or “significant size” and (ii) is involved in trading bitcoin assets. In the Order, the SEC found that Cboe BZX Exchange failed to meet that burden and also rejected the Exchange's assertion that the bitcoin market was of a size and structure that the market for bitcoin was not readily subject to manipulation. The SEC emphasized that its rejection of the Exchange’s proposal is not a reflection on the investment quality of spot bitcoin.

SEC Commissioners Hester M. Peirce and Mark T. Uyeda dissented, calling the decision the “latest in [a] disappointing string of disapproval orders” regarding the listing and trading of products based on bitcoin.