With the last Bitcoin exchange-traded fund (ETF) application out the window after VanEck withdrew their proposal, the investors of the cryptocurrency industry have been looking for other opportunities to bring in institutional investors.

Reality Shares ETF Trusts, which is a sector of Blockchain Capital, recently had an ETF proposal submitted to the SEC, which would’ve effectively exposed bitcoin futures as well.

Presently, Reality Shares has retracted their proposal, only a few days later. The proposal, known as Reality Shares Blockforce Global Currency Strategy ETF, was withdrawn as a result of urging from the SEC’s staff members.

A lawyer for Reality Shares, which has yet to be named, confirmed this report to CoinDesk, stating,

“I can confirm that we did withdraw it and it was withdrawn because the staff are still taking the position that it’s not appropriate to file a registered 40 Act fund with cryptocurrency exposure at this time.”

Interestingly enough, the Investment Company Act of 1940 would’ve allowed the proposal to be automatically approved after a 75-day window, which is exactly what the ETF was filed under.

Though not a part of this case, an attorney with knowledge of the U.S. securities regulations said that Dalia Blass, the SEC Director of Investment Management, basically prohibited fund sponsors from registering under this act, based on a letter in January last year. The letter goes over multiple concerns that the SEC has about

‘Engaging on Fund Innovation and Cryptocurrency-related Holdings.”

After listing issues that need to be resolved in valuation, liquidity, and other topics, the letter concludes by saying,

“Until the questions identified above can be addressed satisfactorily, we do not believe that it is appropriate for fund sponsors to initiate registration of funds that intend to invest substantially in cryptocurrency and related products, and we have asked sponsors that have registration statements filed for such products to withdraw them.”

The letter added that the fund sponsors should avoid using rule 485(a),

“which allows post-effective amendments to previously effective registration statements for registration of a new series to go effective automatically.”

The letter goes on, stating, “If a sponsor were to file a post-effective amendment under rule 485(a) to register a fund that invests substantially in cryptocurrency or related products, we would view that action unfavorably and would consider actions necessary or appropriate to protect Main Street investors, including recommending a stop order to the Commission.”

In submitting the ETF proposal in the way that they did, Reality Shares was in violation of the letter.

It is much different from Bitwise and VanEck’s proposals, which would have been evaluated by the Division of Corporate Finance, the filing that Reality Shares submitted would be under Investment Management. The attorney explained,

“IM reviews 485(a) filings and provides comments, but unlike filings for non-investment companies on Form S-1 … a 485(a) filing goes effective without action from IM.” This is due to a lack of “‘delaying amendment’ that specifies that the filing will not go effective until approved.”

At this time, Blockforce Capital has been unavailable for comment.

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