Bitcoin ETF Companies Just Met With The SEC To Petition For Approval

Representatives of multiple bitcoin ETF proposals met with the Securities and Exchange Commission this past week to petition for approval.

As reported by CoinDesk, representatives of VanEck, SolidX, and the Cboe BZX Exchange met with the SEC on Monday to argue in support of bitcoin ETF approval.

The three organizations collectively have a stake in the most prominent bitcoin ETF making its way through the regulatory system. The VanEck/SolidX Bitcoin Trust ETF would be listed on the Cboe BZX Exchange. That ETF was initially proposed in summer 2018. In September, the SEC pushed back the decision date on that ETF.

To date, the SEC has denied every bitcoin ETF proposal that has come across its desk. The SEC cites similar concerns with all bitcoin ETF proposals: there are fears of market manipulation, for example, and a lack of liquidity. The SEC is concerned that investors have insufficient protections.

This past week, the three firms did their best to convince the SEC otherwise. Representatives from VanEck, SolidX, and the Cboe BZX Exchange met with the SEC’s Division of Corporation Finance, Division of Trading and Markets, Division of Economic and Risk Analysis, and Office of General Counsel.

This isn’t the first time the three firms have petitioned the SEC to approve their bitcoin ETF proposal. However, this meeting took a different approach than previous meetings. While previous meetings focused on regulatory aspects of bitcoin ETF proposal, Monday’s presentation argued in support of bitcoin markets.

As reported by Coindesk:

“…the proponents’ argument centered around the idea that the bitcoin market is mature enough to support an ETF, and at present looks similar to markets for other assets which already have such products. The presentation gave several examples of assets that already have ETFs, including crude oil, silver and gold.”

As mentioned above, the SEC has repeatedly expressed concern with the maturity of bitcoin markets. The SEC does not want to approve an ETF for an immature market that would expose American investors to risk. There are fears of price manipulation and ineffective price discovery, for example, caused by a lack of liquidity and maturity in the market.

VanEck, SolidX, and Cboe clearly feel otherwise, as stated during their presentation to the SEC:

“Similar to commodity futures, the spot and futures prices of bitcoin are tightly linked. This is “evidence of a well-functioning capital market” similar to the markets for crude oil, silver, and gold.”

The firms also addressed manipulation concerns, claiming that the bitcoin ecosystem was “less susceptible to manipulation” than other commodities that supported ETFs.

Crude oil, gold, and silver markets, for example, are susceptible to manipulation via insider trading. Insiders might have information about a new source for an asset being discovered. Or, they might have background information about some event raising or lowering production to impact price.

Bitcoin, meanwhile, does not face this sort of issue. Here’s how the team clearly argued it:

“The linkage between the bitcoin markets and the presence of arbitrageurs in those markets means that the manipulation of the price of bitcoin on any single venue would require manipulation of the global bitcoin price in order to be effective … Bitcoin therefore is no more susceptible to manipulation than other commodities, especially as compared to other approved ETP reference assets.”

The three firms are essentially arguing that you cannot manipulate the price of bitcoin.

Any attempt to manipulate the price of bitcoin would require overcoming substantial market forces. It “would require overcoming the liquidity supply of such arbitrageurs who are effectively eliminating any cross-market pricing differences.” These arbitrageurs are likely to have funds stored on different exchanges, thereby quickly eliminating any attempted price manipulation.

Despite this argument, the SEC clearly feels that price manipulation is a concern that prevents bitcoin ETF approval. Earlier this week, SEC Chairman Jay Clayton argued that market manipulation was one of the primary concerns preventing ETF approval.

Beyond price manipulation, the three firms’ presentation to the SEC also highlighted technologies in place to protect investors. The firms discussed Cboe’s matching engine, for example, and VanEck’s MVIS Bitcoin OTC Index. Both of these systems demonstrate maturity and effective price discovery in bitcoin markets.

Ultimately, it’s unclear if the presentation from VanEck, SolidX, and Cboe will sway the SEC. Based on the SEC’s previous comments, it seems unlikely that SEC approval will occur in the near future – but nobody knows for sure until the final decision on bitcoin ETF is made in late 2018 or early 2019.

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