September 23, 2018
ETF MARKETPLACE IS A WILD WEST PLACE ALREADY
In preparation for this comment, I briefly researched some of the "craziest ETFs", and uncovered that for a quite a while now, the SEC has been approving ETFs that are described in subjective terms or follow industries which at the very least raise eyebrows. Examples:
- Inspire Global Hope ETF TICKER: BLES (Designed to create "meaningful" impact by investing in some of the most "inspiring companies" from around the globe)
- ETF Industry and Financial Exposure ETF TICKERL: TETF (i.e. An ETF for the entire ETF industry)
- The Obesity ETF TICKER: SLIM (Invest in the Battle Against Obesity)
- The Buzz US Sentiment Leaders ETF TICKER: BUZ. (An ETF designed to use social media as a framework for its selections)
I could go on, but the point is that the SEC has already opened the floodgates to an ETF marketplace that probably does NOT raise investor confidence that ETF approvals are designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest. Rather, it seems as though the SEC has construed the relevant portions of the SEA to develop over time a "Wild West" ETF marketplace.
It is no wonder now, that people in the cryptocurrency industry are perplexed and frustrated with the SECs continued denial of an ETF following Bitcoin or cryptocurrencies of any sort. Put simply, a Bitcoin ETF appears to be the next logical step in line line with SEC's trend towards creating a Wild West ETF marketplace.
SEC's AVERSION TO ANYTHING BITCOIN ACTUALLY DECREASES INVESTOR CONFIDENCE
I was fairly confident that the SEC would approve the ProShares Bitcoin ETF, since after all, its investment objective was to seek results that "correspond to the performance of lead-month bitcoin futures contracts listed and traded on either the Cboe Futures Exchange (CFE) or the Chicago Mercantile Exchange (CME)". Simple enough, and based on tangible metrics, right? Alas, the SEC disapproved.
From a futures contract investor's perspective, does the SEC's disapproval of the ProShares Bitcoin ETF effectively bolster the public's perception that my Bitcoin Futures contract is "lesser" or "not as sound" as say, a Gold Futures contract? SEC's disapproval of the ProShares Bitcoin ETF was perceived by this investor to be arbitrary and capricious. It decreased my confidence that the SEC was looking after my best interests insofar as the SEC's actions effectively put an irremovable "stain" on my Bitcoin Futures Contract vis vie other similarly situated commodity futures contracts. Does this violate the Fourteenth Amendment somehow?
In a capitalist and free market, investors should be able to contract (in accordance with law) as they please, and the SEC should consider the market implications before construing the SEA to effectively undermine the validity or public confidence in those contracts. Instead, the SEC's denial of the ProShares Bitcoin ETF did the opposite and appeared to be more arbitrary than anything else.
In summary, the SEC's clear bias in disapproving any and all ETFs which directly or indirectly follow Bitcoin or cryptocurrency (e.g. legally enforceable futures contracts) markets results in LESS investor confidence and TRUST that the SECs actions are done for the public's interest.
SEC SHOULD APPROVE AND REGULATE "SOONER, RATHER THAN LATER"
When we read history books about 2017-2025, we'll likely read about how our Government was too slow to innovate due to its many agencies which were immobilized to act due to an archaic legal structure and model. Technology and the internet acts as an equalizer between first world and developing countries. It is an equalizer that cannot and must not be ignored or undermined. In order to remain at the Top of the global marketplace and at the cusp of innovation moving towards "everything digital", our agencies need to be creative and prepared to employ crisis action teams which do more than "Say no."
These teams should be comprised of experts at the forefront of innovation, technology, policymaking, and their relevant industry expertise. They should be equipped with the appropriate authorities from agency Secretaries to act "Sooner, rather than later." Even temporarily approved ETFs or conditionally approved ETFs should be an option for the SEC, particularly for ETFs related to cryptocurrencies. Innovation in this space is moving much quicker than we've seen in the past. The SEC should play a role in convincing Congress that our Agencies need legal authorities which will allow them to creatively and QUICKLY regulate around new groundbreaking innovations, as well as quickly "Flex" those regulations as the underlying industry quickly evolves and innovates.
As we have seen with Bitcoin and cryptocurrencies, innovation can happen at a "Grassroots" level and fly "under the radar." Now that cryptos are clearly within mainstream detection, the SEC should employ regulatory solutions QUICKLY that respond to the realities of new digital norms. If we are to keep our country competitive and a place that attracts the best of the best in innovation, technology, science, and more, we must employ regulatory solutions "sooner, rather than later."
For these reasons, I submit this comment urging the SEC to immediately approve SR-CboeBZX-2018-040, with the condition that a more comprehensive and cryptocurrency-curated regulatory solution is forthcoming.