Does bitcoin need a spot bitcoin ETF? Probably not. The US might need one or two, though. Other countries have full proof of concepts already working and absorbing capital. None of those products shows any of the problems the SEC thinks a spot bitcoin ETF would bring. Plus, there are already future bitcoin ETFs functioning without a problem in the US. What’s the delay with the spot bitcoin ETF really about?
Several companies are constantly applying to be the first to offer the now mythical spot bitcoin ETF. The SEC keeps rejecting their proposals left and right. Is there a reason behind all of this? The Chamber of Digital Commerce explained it and went for Chairman Gensler’s throat, and that’s the first thing Bitcoinist covered. Their report contained more useful information, though. A series of reasons why the SEC needs to approve a spot bitcoin ETF before it’s too late.
The US Needs A Spot Bitcoin ETF
In “The Crypto Conundrum: Why Won’t the SEC Approve a Bitcoin ETF?,” the Chamber of Digital Commerce puts forth several points that are hard to deny. However, the document also reads like a plea and then as a threat. It’s a weird report, but that doesn’t mean that the points it contains don’t make sense.
“The SEC cannot deny the significant market demand for bitcoin (including, and notably, at the institutional level), yet an investor seeking to invest directly in bitcoin (absent a Bitcoin ETF) must do so without the umbrella of federal securities regulatory protection that has developed over the past 80 years.”
This directly contradicts Chairman Gensler’s argument that the SEC doesn’t approve a spot bitcoin ETF to protect the unsophisticated public. However, what the Chamber of Digital Commerce isn’t telling you is that to self-custody your bitcoin is easy if you accept the responsibility. Bitcoin represents the first time that retail investors have access to property rights.
“The SEC’s official justifications for denying the applications remain the same as those offered in its first denials, despite a significant maturation and institutionalization of the market, proofs of concept offered by similar products operating abroad, and robust and rigorous research undertaken by market participants showing the SEC’s stated concerns to be unfounded.”
The Winklevoss twins first applied for a spot Bitcoin ETF in 2013. Since then, several institutions with tradition, staff, and an infinite budget have tried and failed. According to the Chamber of Digital Commerce, if institutions perceive that their applications will fail no matter what they do, they’ll stop trying. And that will stifle innovation.
BTC price chart for 09/15/2022 on FX | Source: BTC/USD on TradingView.com
Bitcoin’s Price Discovery And The CME
According to The Chamber, “the SEC has imposed on the industry an unprecedented requirement unique only to bitcoin, which requires that an applicant prove that price discovery on bitcoin occurs on the CME.” The organization said that’s what they would need to approve a spot Bitcoin ETF. Something they wouldn’t ask from more traditional products. Well, as it turns out…
“Two of the most sophisticated industry participants designed and implemented research programs that showed that price discovery on bitcoin does in fact occur on the CME on a statistically significant basis. The SEC’s standard has been met – and yet, the SEC has continued to issue denials.”
That’s not all, because “the SEC has shown significant inconsistency in its analysis of whether or not bitcoin price discovery on the CME is statistically significant.” However, the organization still “approved the listing and trading of several Bitcoin Futures ETFs in October 2021,” and all of those are under the CME.
The Bitcoin Ecosystem Has Changed
The SEC knows this. The bitcoin network has evolved, and so have the institutions around it.
“Many highly-regulated entities operate in the bitcoin ecosystem with systems in place to protect client assets and avoid the type of fraud and vulnerability that plagued the bitcoin market in its infancy. By allowing investors to gain exposure to bitcoin through the purchase of a Bitcoin ETF, investors can outsource these due diligence requirements to the issuer of the Bitcoin ETF itself, experts in the space.”
So, the Chamber throws bitcoin users under the bus for what they perceive as a higher purpose. Maybe the US needs a spot bitcoin ETF and many users will benefit from the product and the convenience of paper bitcoin. However, those users could just as easily do their due diligence, learn how to self-custody bitcoin the asset, and call it a day.
“The SEC will now begin defending its denial of the Grayscale application in the courts. For months leading up to the SEC’s decision on the Grayscale application, Grayscale publicly argued that it believed a denial of its application would constitute a violation of the APA and Exchange Act and postured that it would be willing to litigate if such a denial was issued.”
Greyscale sued the SEC, and the Chamber suggests a similar approach. “Unfortunately, it is becoming increasingly probable that it will take litigation or focused efforts by Congress to break through the SEC’s increasingly arbitrary and unwarranted treatment of this important investment product,” their report concluded near the end.
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