Last week, the Securities and Exchange Commission (SEC) denied the application by the Bitcoin-linked ETF SolidX for listing on the New York Stock Exchange (NYSE). This marks the latest in a string of several ETFs linked to the cryptocurrency which have failed to make it onto the list. Most recently before that, on March 10th of this year, the regulatory agency denied a similar bid from Bats BZX Exchange, an ETF by investors Cameron and Tyler Winklevoss. Some analysts are recognizing this as a pattern of SEC denials of ETFs related to the digital currency. Could there be a reason why the SEC is reluctant to admit Bitcoin ETFs to the exchange?

Market Surveillance a Concern

In both the most recent denials, the SEC has released notices indicating that the ETFs in question lacked sufficient market surveillance agreements to be listed on the Exchange. For the SolidX decision, the SEC issued a statement indicating that "the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity." This was similar language to what was used in the statement related to the Winklevoss' ETF denail. This is a confirmation that the SEC believes that the Bitcoin and cryptocurrency worlds are insufficiently surveilled by outside regulatory agencies and markets.

Lack of Regulation Problematic As Well

The dearth of surveillance oversight is not the only issue for the regulators of the SEC. In its statement, the agency indicated that SolidX and Bats BZX Exchange were not part of a market that was sufficiently regulated. Of course, regulation is a major question for Bitcoin and similar digital currencies, many of which were created on the premise that they would be less subject to regulation that traditional currencies. As these currencies have gained traction and are now appearing in broader applications in the general market, however, they are running into the issue that they must meet certain expectations in order to participate in that market. Regulation is a key step in the path to legitimacy for any market, including cryptocurrency trades. It is likely that many proponents of cryptocurrencies will push back against any efforts to regulate those currencies. But, at the same time, other customers may feel that some additional regulation may be beneficial if it allows for the appearance of more Bitcoin-related ETFs on the broader stage.

The SE's actions seem to suggest that the regulatory agency is still trying to figure out how to deal with applications like those by Bats BZX and SolidX, evidenced by the fact that the agency decided to push back its decision in the latter application by several months. It is likely that there will be more debate about the future of Bitcoin ETFs to come.