July 24, 2018
The Commission's published disapproval of the proposal for Winklevoss Bitcoin Trust SR-BatsBZX-2016-30 states that it, "believes that the significant markets for bitcoin are unregulated. Therefore, as the Exchange has not entered into, and would currently be unable to enter into, the type of surveillance-sharing agreement that has been in place with respect to all previously approved commodity-trust ETPs—agreements that help address concerns about the potential for fraudulent or manipulative acts and practices in this market—the Commission does not find the proposed rule change to be consistent with the Exchange Act."1
Looking at the market landscape today this assessment should not be greatly changed. In a 24-hr sampling made on 24-Jul-18 at 20:00UTC major US-operating exchanges (Coinbase Pro, itBit, Gemini, Kraken) summed up to 14% of global fiat-based trading volume2. These are the exchanges that are in progress or potentially capable of setting up regulatory-approved market surveillance systems but wash trading, order spoofing and so forth can still be seen in action on all markets today.
There is improvement from 2 years ago when 96% of volume occurred unregulated in China but this leaves 86% of market activity still under no official established regulation against fraudulent trading activity or manipulation. US bitcoin exchanges still blindly and automatedly follow the dominant unregulated markets due to their own thinness of volume and liquidity.
More incredible is the emergence of USDT (Tether) a cryptocurrency token issued by a single exchange that claims to be 'pegged' to USD value and unprovenly to be backed by USD reserve. It now commands over 130% of global trading volume compared to all fiat pairs. Among the top 10 exchanges by volume this ratio persists2. Studies3 and articles4 have been published about the market manipulation effects of USDT in the 2017 speculative bubble to effect of printing 'money' to boost the market5. These risks are not disclosed to investors and investigations into Bitfinex, Tether and other market maniulations have yet to be resolved.67
Approving a bitcoin ETF would be reckless prior to the emergence of fully regulated and monitored US exchange(s) that measurably command volume, liquidity and price action. As argued in the previous ETF proposal comments this may never come to pass because the wild-west unregulated, highly leveraged, highly manipulated and money-laundering ridden nature of bitcoin trading is precisely what gives it the volatility and appeal in the first place.
1 https://www.federalregister.gov/documents/2017/03/16/2017-05213/self-regulatory-organizations-bats-bzx-exchange-inc-order-disapproving-a-proposed-rule-change-as
2 https://coinmarketcap.com/currencies/bitcoin/#markets
3 http://thehill.com/policy/technology/392079-study-bitcoins-price-was-manipulated-in-2017-run-up
4 https://www.cnbc.com/2018/02/02/tether-what-you-need-to-know-about-the-cryptocurrency-worrying-markets.html
5 https://hackernoon.com/the-curious-tale-of-tethers-6b0031eead87
6 https://www.bloomberg.com/news/articles/2018-01-30/crypto-exchange-bitfinex-tether-said-to-get-subpoenaed-by-cftc
7 https://www.bloomberg.com/news/articles/2018-05-24/bitcoin-manipulation-is-said-to-be-focus-of-u-s-criminal-probe