July 13, 2018
I have read SEC's concerns regarding Bitcoin ETF's here:
https://www.sec.gov/divisions/investment/noaction/2018/cryptocurrency-011818.htm
I believe these concerns are very good and demonstrates the level of detail the SEC ought to check in order to approve a ETF.
Here's how the market appears to have addressed each point:
1. Valuation:
Currently CBOE and CME tracks multiple exchanges to determine the fair price of Bitcoin in futures trading. The same would be applicable to Bitcoin ETF. Multi-linked price determination prevents price manipulation. Arbitrage oppurtunities force exchanges to maintain price fairly.
2. Liquidity:
The daily trading volume of Bitcoin is literally in the billions. CBOE's proposal for ETF includes trading in both Exchanges and Over the Counter options at 25 Bitcoins per transaction. The market demand for the ETF should be fluid based on supply and demand. If the demand action is high and supply is low, the ETF price would go up. If demand is low and supply is high, the ETF price would go down. The access to supply will not prevent ETF trading.
3. Custody:
Bitcoin custodial services have matured quite a bit over the years. The leading method of custodial service is cold storage where the physical Bitcoin private keys are stored off the grid in multiple locations preventing any one point of failure to compromise the rest of the custodial service.
4. Arbitrage (for ETFs)
There are 25 Bitcoin exchanges in the U.S. alone. There are also a growing number of derivatives trading options (CBOE and CME being an obvious big 2). The closure or trading halt of 1 exchange should not be able to prevent arbitrage oppurtunities. In fact, one could observe that the U.S. Stock market has less oppurtunity for arbitrage given the centralize nature of stock listings.
5. Potential Manipulation and Other Risks
The necessity for Bitcoin ETF addresses this very point. Cryptocurrency and any commodity trading carries the same risk for market manipulation. If someone owns enough of an asset, that entity has huge market influence. Currently Bitcoin ownership is centralized with exchanges and wealthy individuals. Without ETF's, the current market influence is centralized around these individuals. Whereas if a ETF is approved, the collection of individuals and their influence would finally create fair competition.
Thanks for reading these comments.
Lisa Lee