June 13, 2019
Dear Chairman and Commissioners, Re: File No. SR-NYSEArca-2019-01: Proposal to List and Trade Shares of the Bitwise Bitcoin ETF Trust Under NYSE Arca Rule 8.201-E I wish to make a few comments regarding the responses received to this proposal. In comment: https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5661643-185791.pdf It states that "To return to our bitcoin example, if the NAV of the fund crashed to $4,000/bitcoin due to market manipulation, but the real market (expressed, for instance, in the front-month CME bitcoin futures market) continued to trade at $8,000, investors would not try to drive the price of the ETF down to $4,000, but would rather ignore the NAV until it was restored to a level that reflected the true market." I question this comment as how is one to determine the actual value of Bitcoin in the first place? How does an investor know that it is not actually $4,000 or less? Furthermore, we are assuming that the market participants are rational. The idea of "Homo Economicus" has been refuted as modern behavioural economists and neuroeconomists, who have demonstrated that human beings are, in fact, not rational in their decision making, and argue a "more human" subject (that makes somewhat predictable irrational decisions). Moreover, how do we know that traders on the CME markets who own BTC on the spot market will not be actively involved in price manipulation both through mechanisms available through CME and simultaneous trading on well over 400 Global exchanges? In the lengthy response by Bitwise: https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5663768-185796.pdf, there are a few things that need to be questioned. On page 3 they conclude: "The market today is more institutional, more orderly, more regulated, and more established than it was both when the Bats BZX Exchange, Inc. entered its Rule 19b-4 Filing and when the Commission published the Winklevoss Order." Yes, they claim it is "more orderly, more regulated, and more established". But "more" is not a word that engenders confidence to grant an ETP upon. It is a very subjective word which could mean anything from yes, we are 100% confident that the market is ready for a Bitcoin ETP to we are 30% more confident (but grant one anyway and let's see how it goes). On page 9 they state: "The degree to which bitcoin trading volume occurs overseas on lightly or entirely unregulated exchanges is generally overstated, driven by popular but incorrect data propagated by leading crypto data aggregators like CoinMarketCap.com. As demonstrated in the Bitwise Study, nearly 30% of all bitcoin trading volume occurs on exchanges domiciled in the U.S., and the majority occurs on exchanges domiciled in or operating out of developed markets." This means that if "nearly 30%" of bitcoin trading volume occurs within the said market, then we can say more than 70% does not. So when Bitwise comment on a more "more orderly, more regulated, and more established" market, they are commenting on just the "nearly 30%" of all trading. What about the other >70%? This is, again, not confidence inspiring. On page 11, they say: "Second, the true nature and size of the spot bitcoin market has been revealed by the Bitwise Study and the Bitwise White Paper". Unless further independent studies are conducted, we can never be sure that this is the correct picture. It seems ‘helpful’ for someone who wants a Bitcoin ETP to provide the research that they have. Page 31 states: "It is important to separate out the market for bitcoin in capital-controlled economies from the market for bitcoin in the integrated global market. It has been broadly documented that bitcoin trades at different prices in markets with significant capital controls compared with markets that allow for the free flow of capital. The reason for this is simple: capital controls either prevent arbitrage or make it significantly more difficult. This explains the premiums seen in the bitcoin-vs.-Chinese yuan (CNY) trades referenced here, as well as the well-documented premium that can exist in the bitcoin market in South Korea. The difficulty in arbitraging prices in capital-controlled markets is documented in the Bloomberg article, "Bitcoin's 43% Arbitrage Trade Is A Lot Harder Than It Looks.”13 This comment does not mean that people in Capital Controlled Countries cannot still participate and influence (and manipulate) the Bitcoin Market. For example, people in Venezuela and Zimbabwe participate as do almost all (Significant) Capital Controlled countries (https://www.investopedia.com/trading/how-fiat-currency-crises-drive-nations-toward-cryptocurrencies/). Getting around Capital Controls to participate and manipulate this market is not that difficult. They then go on at great lengths to explain how risks and other factors are "less" than the very recent past and try hard to make a case that the time is right for a Bitcoin ETP. However, I am not convinced by one piece of research that was commissioned, designed and presented by the beneficiary of the very same research! They still do not convince that Bitcoin manipulation is not a real risk and that significant inroads have been made to provide a choice of independent custodians with an excellent track record. Best Regards, Robert.