Jul. 28, 2018
Dear Sir/Madam,
Re: File No. SR-CboeBZX-2018 001
It is in my opinion that the Bitcoin market is not significantly mature enough for a product such as an ETF to be launched. There are many reasons, and I am sure you are aware of many of them such as manipulation (https://bitcoinmagazine.com/articles/us-justice-department-probes-price-manipulation-bitcoin-markets) and understanding what the fair value of Bitcoin actually is.
I understand that we have the CBOE and CME Futures markets up and running and they argue that they can provide a Fair Value of what the price of Bitcoin is. However, this does not mean the underlying markets are free from manipulation as while the Futures Markets close Bitcoin never does. Quite simply, Bitcoins have value because a growing group of people believe that the underlying Bitcoin technology has value. Yes, there is an argument that commodities such as Gold share similar properties. This is true to a limited extent, but Gold is not a line of code invented by an unknown entity and does not face the risk of disappearing overnight due to the physical nature of the commodity. There have also been many people appealing to the SEC for this ETF and other Bitcoin-related financial instruments so that they can add them to their portfolio and achieve a new Efficient Frontier. However, we have to revisit the question of valuation of Bitcoin which even the CBOE has admitted having difficulty with calculating based on market value, which can easily be manipulated. For example on page 25 of Release No. 34-83520; File No. SR-CboeBZX-2018-04 it states: “While the Trust’s investment objective is for the Shares to reflect the performance of the price of bitcoin, fewer expenses of the Trust’s operations, the Shares may trade in the secondary market at prices that are lower or higher relative to their NAV per Share for a number of reasons, including price volatility, trading volume, and closing of bitcoin trading platforms due to fraud, failure, security breaches or otherwise.” This is not encouraging. With regards to manipulation in the marketplace: it a globally connected one traded 24 hrs a day 7 days a week using robots (high-frequency trading) and prone to the almost instant dissemination of information through various channels such as Twitter, Facebook and questionable Cryptocurrency Magazines and Blogs. To say that it cannot be easily manipulated is very naïve. Even the news of your rejection of the Bitcoin ETF File No. SR-BatsBZX-2016-30 sent the price of Bitcoin tumbling by approximately 5% in minutes yesterday. And the unprofessional dissent by Commissioner Hester M. Peirce (link posted on Twitter: https://qz.com/1342037/bitcoin-believers-are-flocking-to-a-sympathetic-sec-commissioners-twitter-account) afterwards, sent it hurtling back up by the same amount in the hopes that the next ETF (SR-CboeBZX-2018-04) will be approved on August 16th. There is no question that if a simple event such as this can affect the market in such a dramatic manner in a couple of hours, then it is far too volatile for mass consumption.
It has not even been 12 Calendar Months since we have had the launch of the Futures and also suffered a major shock to the Bitcoin Market which saw the price fall from $20,000 to around $5,500. A great many people have already suffered due to the hysteria generated by this line of code. I believe for portfolio risk reduction we already have a fantastic number of options out there. We need not risk, for the moment getting something as volatile, globally manipulated and hard to control before it has been observed for a more extended period.
Regards,
Vikky