First and foremost, the Securities and Exchange Commission that made the ruling expressed concern about Bitcoin’s trading reliability and security; two significant issues which don’t appear to be easy fixes anytime soon. The commission went on to say “The record before the commission indicates that a substantial majority of bitcoin trading occurs on unregulated venues overseas that are relatively new and that, generally, appear to trade only digital assets.” The commission stated that more than 75% of Bitcoin trading happens on unregulated foreign exchanges.
But, the commission did note that regulated Bitcoin markets are in their early stages of development and that if they further grow, the commission would then review the idea of allowing a Bitcoin ETF based on SEC requirements.
There was, however, one of the four Commissioners who voted in favor of allowing the Winklevoss Bitcoin ETF. That commission wrote, “The Commission's mission historically has been, and should continue to be, to ensure that investors have the information they need to make intelligent investment decisions and that the rules of the exchange are designed to provide transparency and prevent manipulation as market participants interact with each other.”
While I agree with the lone dissenting Commissioner, her interpretation of Commissions guidelines and mine may be different. Even in her dissent letter, she stated “prevent manipulation” which I believe was what the other Commission members were trying to do when voting against the ETF.
The SEC will likely never be able to stop or indeed “prevent manipulation” within the Bitcoin or cryptocurrency world. But the SEC does have a mandate to try to prevent manipulation, which I believe is what they are doing by not allowing a Bitcoin ETF until the majority of the exchanges the currency is traded on are up to par with security and reliability standards.
Also, while some investors are more than willing to invest in Bitcoin regardless of whether or not the SEC gives the cryptocurrency its blessing or not, the average investor whom otherwise would not invest in Bitcoin unless they could quickly do so through an ETF will now continue to avoid the cryptocurrency world.
Which I think is the important point here, regardless of whether or not you are a believer in cryptocurrencies.
The SEC has once again told the average investor that Bitcoin and other cryptocurrencies are not the safest investments. The SEC is not saying Bitcoin itself is a fraud. They are simply saying Bitcoin in its current environment is not the safest investment option. Also, the SEC has continued to make it slightly more difficult for the average investor to buy or sell Bitcoin’s. An SEC approved ETF would also open the door up to institutional investors who are only permitted to invest in SEC approved investments.
Keeping a large number of institutional investors out of Bitcoin and making it more difficult for small investors essentially reduces the overall demand for Bitcoin and other cryptocurrencies, which in turn reduces their value. Bitcoin and cryptocurrencies believers are disappointed by the SEC’s decision because of this fact because remember the true believers already own Bitcoin and don’t care about the hassle they have to endure to buy cryptocurrencies.
A Bitcoin ETF would open the floodgates of new investors to the asset, and we likely would have seen another big jump in the price of the cryptocurrency, but instead, Bitcoin has once again fallen from the $8,000 range to the mid $7,000 range following the news of the SEC denial.
Longer term, Bitcoin and a Bitcoin ETF could potentially happen, but based on what the commission has told us, only if oversight and size of the current exchanges dramatically improves. Even an ETF based on Bitcoin futures, which have also been recently proposed, will not likely happen anytime soon based on the commission's comment that “the record does not support a conclusion that bitcoin derivatives markets have attained significant size.”
With that, all said, it would appear a Bitcoin or Cryptocurrency SEC approved ETF is not going to happen anytime soon.
Matt Thalman
INO.com Contributor - ETFs
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