Subject: SR-CboeBZX-2019-004 Comment
From: Jonathan Harris

Mar. 20, 2019

To: SEC. 
As an investment professional, I have extensively researched Bitcoin and 
the cryptocurrency world. It is in the public interest that the Van Eck 
and any other applications for a Bitcoin ETF be rejected. 

In addition to have been the subject of extensive price manipulation, 
Bitcoin is inherently vulnerable to manipulation because the only way it 
can deliver value for an investor or speculator is the attraction of 
additional buyers price levels higher than the speculator’s cost. The 
manipulation appears in two forms: 1) direct manipulation through 
activities on exchanges, such as those described in the work of Griffen 
and Shams , and 2) more commonly misleading articles, social media 
postings, advertisements. 

First, I will leave it to other researchers, such as Griffen and Shams 
to assess the direct manipulation through trading activities on the 
exchange and provide some examples of misleading statements intended to 
manipulate the price of Bitcoin. 

One class of misleading statements often include conflating Bitcoin with 
a more general family of technologies referred to as blockchains. The 
Van Eck proposal actually includes such a claim under the sub-heading 
“Use of bitcoin and Blockchain : 
“Although value transfer is not the primary purpose for 
blockchain-focused applications, the usage of bitcoin, the asset, is 
inherently involved in blockchain-focused applications, thus linking the 
growth and adoption of bitcoin to the growth and adoption of 
blockchain-focused applications.” 

Such claims attempt to promote Bitcoin by citing the potential of the 
usage of technologies that share similar data structures, referred to as 
blockchains. They are misleading because a) Bitcoin gives its holders no 
rights to use blockchain technologies, and b) The variations of the 
technologies are substantially different from Bitcoin. For example these 
blockchains avoid the expensive proof-of-work mining and instead rely on 
“consensus” algorithms executed by validators chosen by the blockchain 
sponsor. The usage of these technologies is irrelevant to the investment 
case for Bitcoin or the decision to approve a Bitcoin focused ETF. 

Another set of misleading claims involve social media posts and articles 
implying that Bitcoin is being more widely used. Most of these claims, 
such as alleging widespread usage or growth of usage of Bitcoin in 
countries such as Venezuela or Iran, cannot be substantiated. 

More importantly, the fundamental investment characteristic of bitcoin 
relies on manipulation. This is because an investment in Bitcoin 
provides no rights to cash flow or to use any real or intangible 
property. An investment in Bitcoin can only be profitable should one 
find a buyer willing to pay a higher price. 

A quick survey of articles on Bitcoin using an aggregator like Google 
News will show many articles on price action discussing new investors 
buying Bitcoin. How many dollars from new investors, particularly 
recruiting institutional investors who invest other people’s money is a 

The news that ultimately drives the price of Bitcoin is the potential 
for more people to buy into it. Hence the large number of comments you 
receive from holders desiring the approval of the ETF so they can 
realize a price increase and the volume of articles citing the potential 
for an ETF to increase the price of Bitcoin by bringing in buyers. 

The number or type of investors in Bitcoin is not verifiable because an 
the ownership of an account recorded on the Bitcoin blockchain is 
unknown. One entity can own multiple accounts and one account can be 
controlled by an entity, such as an exchange on behalf of many people. 

In contrast discussion of the price action of valid investments 
inevitably revolves around future earnings potentials of firms or the 
demand for commodities by end users. Much of this information is 
available to the public. 

While it is true that profits from many investments are realized through 
sales; those investments still provide cash flows that underpin the 
value of the asset. For example ownership in a stock provides the holder 
with rights to future earnings that could yield cash flows. Thus the 
valuation of these instrument changes with evidence of the ability of a 
firm to produce the earnings or the supply and need for a commodity. 

Bitcoin advocates may erroneously claim this objection applies to any 
currency. They are omitting the difference that governments require 
their usage of their currency in many activities, particularly the 
payment of taxes and government fees. This provides a captive market 
where those who operate in alternative currencies must bear the risk and 
expense of having to convert between currencies. 
Hence valid currencies are heavily used in their issuing countries. 
Their purchasing power of these currencies varies in a predictable 
fashion, rarely increasing and decreasing at an inflation rate 
determined by the economic conditions and activities of central banks. 

If the SEC approves a Bitcoin ETF, then it should be willing to approve 
ETFs that invest in defunct companies and pyramid schemes, because the 
cash flows and utility of these entities is the same as Bitcoin’s. The 
key differences between these and Bitcoin is that Bitcoin uses a more 
novel method of recording people’s stake, a blockchain, and that there 
is a significant industry built around promoting the purchase of Bitcoin. 

Some writers have argued for approval on grounds that a Bitcoin ETF 
would provide a safe way for investors to hold Bitcoin. This assumes 
that investors brokerage accounts and the ETF provide better security 
arrangements than existing exchanges. Already it is rather easy for an 
individual to open an account at a legitimate Bitcoin exchange and 
purchase Bitcoin. Even if holding through the ETF represents less 
operational risk, this must be balanced against the potential risk to 
more buyers and ultimately the financial system should Bitcoin be 
granted the endorsement by the SEC that your approval of a Bitcoin ETF 
would imply. 

I note that at some point, the Bitcoin promoters exhaust the pool of 
buyers. Then the price appreciation that was sold to investors will 
cease to satisfy them and the investors will be left holding the bag. I 
write this in hope that the SEC will not encourage a situation where we 
have more bag-holders, potentially with enough exposure to impact the 
financial system when investors lose patience waiting for appreciation 
that has ceased. 
Thank you for considering these thoughts. 

Sincerely yours, 

Jonathan G. Harris PhD, CFA. 

Jonathan G. Harris