March 6, 2017
I have been a bitcoin enthusiast for many years now but I do feel that an ETF at this time would be a very risky investment vehicle for the general public, as well as detrimental to the future of bitcoin. On my first point, right now bitcoin is at a crossroads in its development which has split the community in two. This is in regards to the issue of the "hard fork" in the software code noted in the S-1 amendments, which is in reality more serious than is explained as a risk factor. For the better part of a year, there has been manipulation on the bitcoin network by one side of the community in an attempt to flood the transaction pool thus slowing transaction speeds down and raising fees. There is also the threat of a forced consensus by this same group that involves investing millions to buy more mining equipment and raising mining share for one version of code, resulting in a forced "fork" of the bitcoin network. Once they have raised their percentage of the network high enough, a coup of the bitcoin network is possible. Basically, the truth is no one is completely sure which version of bitcoin is the right way to go with, only that one of these sides will eventually win out. And even then, no one can say with absolute certainty that the improvements to the network will be successful and not break the entire bitcoin experiment altogether. Right now we are in very shaky times regarding the future of scaling and development for bitcoin.
In regards to price, the price of bitcoin is being heavily manipulated at this very moment on exchanges which somehow began the day of the SEC's Feb 14th meeting but before the news of this very meeting was released to the public. Currently, we are at all time highs based on rumors and speculation on this meeting alone and it feels like we are again in a price bubble which could result in a huge loss for new investors. An approval of the COIN ETF at this time would only exacerbate this bubble and result in a price crash even before ETF trading will be fully available. As you may well know, there is no regulation or oversight right now for our 24 hour worldwide market of exchanges. Earlier this year in China, the price reached an all time high of $1289 per bitcoin only to crash 58% down to $750 based on tweets that the PBOC was about to hold private meetings with the Chinese bitcoin exchanges. This news was tweeted out by one of the very exchanges they were meeting with, BTCChina. Price manipulation by the Chinese has been rampant since the beginning in the form of zero-fee trading resulting in huge, fake volume by several of the Chinese exchanges combined with empty threats of banning bitcoin by the PBOC, resulting in huge price drops each time. It's also very important to note that the PBOC has recently announced that they will be releasing their own digital currency called the RMBCoin at some point in the future, in order to stem the flow of capital flights that bitcoin is used for. This could certainly result in the outright ban of bitcoin in a country that holds a very large percentage of the world's bitcoin miners, which is possibly 50% or more.
I am optimistic about bitcoin's future in the long run. It is not a ponzi scheme as others claim. However, due to the reasons listed above, I feel that it would be a hasty decision to approve an ETF to the general public at this time before the software issues, price manipulation and certain issues with China are fully resolved.
Michael LeeIT Professional