Following the highly publicized SEC decision to deny the Winklevoss Bitcoin ETF Application last week, debate sparked amongst Bitcoin enthusiast as to whether or not the SEC would allow future Bitcoin ETF applications, including the well-developed and highly anticipated VanEck ETF, which is currently being reviewed by the SEC.

VanEck wrote a letter to the SEC addressing the regulator’s concerns expressed in their ruling on the Winklevoss ETF application. The letter, which was addressed to Dalia Blass, director of the SEC’s division of investment management, covered the SEC’s five points of order, which are: valuation, liquidity, custody, arbitrage, and manipulation.

On the point of valuation concerns, VanEck explains that it is common practice to use futures to build an investment profile in a particular asset. They also refer to the other listed products that base their price on futures contracts, and that prices from CBOE and CME are adequate to determine an ETF’s net asset value.

“We believe that the prices provided by CBOE and CME afford fund sponsors adequate information to value the bitcoin futures contracts held by a fund for the purpose of determining the fund's net asset value (‘NAV’)”

On the point of liquidity, VanEck references the high liquidity that exists in the Bitcoin markets, and that the Bitcoin futures market has been efficient against the physical Bitcoin market, with a total futures trading volume of almost $200 million.

They also added that the Bitcoin market decline hasn’t affected futures trading volume, saying:

“Additionally, it is important to note that, despite the fall in the price of bitcoin in 2018, bitcoin futures trading volumes have not decreased, and physical trading volume has fallen but is still significant.”

On the point about custody, VanEck explains that the ETF would be based on Bitcoin future prices, and that it would not initially invest in physical Bitcoin. Because of that fact, the issue of custody is irrelevant.

On the point of Arbitrage, VanEck explains that the Bitcoin markets are not significantly more volatile than gold miner stocks or comparable equities, saying:

“We believe that neither the volatility nor the current volume in the bitcoin futures market will inhibit the creation and redemption process by authorized participants and that these creations and redemptions will keep the proposed ETF’s market price in line with its NAV.”

Arguably the SEC’s biggest concern with the Winklevoss Bitcoin ETF was the possibility of price manipulation. On this point, VanEck explains that:

“While one cannot rule out manipulation in the underlying spot market, we believe that, due to the diversified ownership and volume of trading, the market does not have major, structural vulnerabilities. Therefore, the Commission’s increased enforcement and regulatory actions can reduce the number of bad actors in a basically sound market.”

The SEC’s decision on the VanEck ETF is expected in September, assuming it is not further delayed.