Members of VanEck, SolidX and the Cboe BZX Exchange met with U.S. Securities and Exchange Commission (SEC) staff earlier this week to present a new argument on why the bitcoin market is ready for an exchange-traded fund (ETF).
In the latest push to convince the regulator to approve a rule change which would open the door for the country’s first bitcoin ETF, the three firms 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.
Instead, 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.
The presentation specifically tied the idea of futures markets with spot markets, noting that for money substitutes such as gold and silver, this connection between the two can be proven with empirical evidence. Further, this type of price co-integration “is evidence of a well-functioning capital market.”
The firms went on to explain that “Similar to commodity futures, the spot and futures prices of bitcoin are tightly linked”, again providing “evidence of a well-functioning capital market.”
On another note, they argued that the bitcoin ecosystem is “less susceptible to manipulation” than other commodities which already support exchange-traded products.
For example, insiders might possess or trade information related to the supply of physical commodities – say, if a new source for an asset is discovered, or if some event lowers the production – and this may impact price.
Bitcoin does not face this sort of issue, the presentation notes, adding:
“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.”
Any attempt to manipulate bitcoin’s price “would require overcoming the liquidity supply of such arbitrageurs who are effectively eliminating any cross-market pricing differences”, especially as these arbitrageurs are likely to have their funds stored on different exchanges to take advantage of price differences.
The applicants’ pitch came a day before SEC chairman Jay Clayton said concerns about market manipulation are one of the barriers preventing an ETF approval.
Speaking at CoinDesk’s Consensus: Invest conference a day after the presentation, Clayton explained that “the prices retail investors are seeing are the prices they should rely on, and free from manipulation.”
Outside the market itself, the ETF’s proponents highlighted Cboe’s matching engine and VanEck’s MVIS Bitcoin OTC Index as further benefits on Monday.
In particular, MVIS’ other indices are designed specifically for use with an ETP. The VanEck subsidiary already offers 88 indices on different asset classes, passively managing some $15 billion-worth. The company is also in compliance with the EU’s benchmark regulation, they added.
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