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The Case FOR a Bitcoin ETF

Dave Weisberger

December 12, 2022

https://www.coindesk.com/the-case-for-a-bitcoin-etf

Issuers have submitted proposal after proposal for a Bitcoin based Exchange Traded Fund (ETF), and the SEC has delayed or rejected each one.  It’s time, however, to ask why and if the SEC’s frustration over not having jurisdiction over crypto-currencies is clouding their judgement.  In my opinion, the answer might well be yes…

 

[1]

 

“Because, among other things, the Sponsor has asserted that 95% of the bitcoin spot market consists of fake and non-economic activity, but has not established that it has in fact identified the “real” bitcoin market, or that the “real” bitcoin market is isolated from the fraudulent and manipulative activity, we find, in each case, that NYSE Arca has not met its burden to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and therefore the Commission disapproves this proposed rule change.”

 

 

[2]

 

[3]

 

[4][5]

 

Bitcoin has multiple regulated futures markets in the US, giving the CFTC similar jurisdiction as they have in precious metals, and, unlike precious metals, the spot markets have significant electronic (and therefore auditable) data on buyers and sellers.  These markets represent a critical mass of transparent, displayed liquidity, which should be the defining characteristic for this decision.  It insures that there would be available data for the CFTC to utilize when there are allegations of manipulation.

 

[6]

 

Finally, it is important to address the SEC’s contention that “fake” or manipulated markets outside of the U.S. represent a problem for a Bitcoin ETF.  This is simply wrong.  The markets they reference can be excluded from calculations of available liquidity and price.  In fact, the many commodities trade at different prices in other parts of the world, but those prices are ignored by the US issued ETF.   As a result, those unregulated markets, while problematic for their clients, is a red herring that should not factor into the decision to approve a U.S. based ETF.

 

 

In conclusion, I believe that the SEC, perhaps due to its bias against the asset itself, is improperly delaying an ETF approval.  Considering the availability of real time, fully priced liquidity, using only markets that are regulated in the U.S., as well as the existence of multiple CFTC regulated Futures markets, the time is now.

[1]https://www.sec.gov/rules/sro/nysearca/2019/34-87267.pdf[2][3][4]https://www.forbes.com/sites/greatspeculations/2019/05/20/yes-gold-is-being-manipulated-but-to-what-extent/#7dd003bf2865[5]https://www.justice.gov/opa/pr/current-and-former-precious-metals-traders-charged-multi-year-market-manipulationhttps://www.coindesk.com/the-case-for-a-bitcoin-etf

Issuers have submitted proposal after proposal for a Bitcoin based Exchange Traded Fund (ETF), and the SEC has delayed or rejected each one.  It’s time, however, to ask why and if the SEC’s frustration over not having jurisdiction over crypto-currencies is clouding their judgement.  In my opinion, the answer might well be yes…

 

[1]

 

“Because, among other things, the Sponsor has asserted that 95% of the bitcoin spot market consists of fake and non-economic activity, but has not established that it has in fact identified the “real” bitcoin market, or that the “real” bitcoin market is isolated from the fraudulent and manipulative activity, we find, in each case, that NYSE Arca has not met its burden to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and therefore the Commission disapproves this proposed rule change.”

 

 

[2]

 

[3]

 

[4][5]

 

Bitcoin has multiple regulated futures markets in the US, giving the CFTC similar jurisdiction as they have in precious metals, and, unlike precious metals, the spot markets have significant electronic (and therefore auditable) data on buyers and sellers.  These markets represent a critical mass of transparent, displayed liquidity, which should be the defining characteristic for this decision.  It insures that there would be available data for the CFTC to utilize when there are allegations of manipulation.

 

[6]

 

Finally, it is important to address the SEC’s contention that “fake” or manipulated markets outside of the U.S. represent a problem for a Bitcoin ETF.  This is simply wrong.  The markets they reference can be excluded from calculations of available liquidity and price.  In fact, the many commodities trade at different prices in other parts of the world, but those prices are ignored by the US issued ETF.   As a result, those unregulated markets, while problematic for their clients, is a red herring that should not factor into the decision to approve a U.S. based ETF.

 

 

In conclusion, I believe that the SEC, perhaps due to its bias against the asset itself, is improperly delaying an ETF approval.  Considering the availability of real time, fully priced liquidity, using only markets that are regulated in the U.S., as well as the existence of multiple CFTC regulated Futures markets, the time is now.

[1]https://www.sec.gov/rules/sro/nysearca/2019/34-87267.pdf[2][3][4]https://www.forbes.com/sites/greatspeculations/2019/05/20/yes-gold-is-being-manipulated-but-to-what-extent/#7dd003bf2865[5]https://www.justice.gov/opa/pr/current-and-former-precious-metals-traders-charged-multi-year-market-manipulation[6][6]