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SEC Commissioner Peirce: ETF “Definitely Possible”

In a podcast aired on 24 November, SEC commissioner Hester Peirce has commented that the launch of a future cryptocurrency ETF is “definitely possible”.

Her comments could signal a change in the SEC’s stance on ETFs which until now have failed to get through the regulator’s screening process.

However, the comments by Peirce are her own, as she makes clear in the podcast, and not necessarily those of the SEC as a whole. Nonetheless, the commissioner has pointed out that she sees “significant intellectual capital” being invested by both institutional investors and exchanges towards the development of a Bitcoin ETF.

It is worth noting that Peirce represents one-fifth of the SEC’s regulatory body in terms of managing the entire regulatory landscape environment for security investments in the United States, so her views carry significant weight in terms of being a mouthpiece for the government body.

Peirce is perhaps better known for her criticism of how the SEC handled the Winklevoss twins’ rejected application for an ETF in July of this year. At the time, she commented:

“I think that one of the reasons is that in the past, with other applications for commodities – you might think of metals – [the SEC] also looked at the underlying markets. I would argue that this also was not the right approach at looking at those. Of course, that was well before my time here. But, in addition, I think that there is concern around new technologies, and I think some of that is reflected in the disapproval order.”

She added that she felt that the SEC in general treats innovation with caution, feeling that the body maintains it is safer to simply “put the brakes on” than to approve ETF applications. The commissioner suggests that the SEC needed to figure out a way of being less cautious and letting “innovation go forward” rather than being concerned about criticism if projects fail.

The ETF debate is a topical one at present, particularly with Bitcoin struggling to find any stability in the market, and along with the adoption of cryptocurrencies by institutional investors, the approval of ETFs is now being seen as the industry’s saving grace.

 

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Growth Over Time in Crypto Market Could Jumpstart SEC’s ETF Decisions

Asjylyn Loder, writing for the Wall Street Journal, feels that Bitcoin exchange-traded funds (ETFs) will happen; it’s just a matter of time.

After ten rebuffs to date, it must seem to these crypto companies that they are continually banging their heads against a wall. Loder reminds them that history is on their side, although when this history is examined, the time lag may be a bit of a wake-up call for the new players on the block, as she points out, “The first ETF pegged to volatility futures launched five years after the debut of the futures, and the first oil ETF followed oil futures by 23 years.”

However, those early applications have an advantage, which is clearly why they keep on coming. The hope is that at least one successful approval on ETF by the SEC would bring a tidal wave of institutional buyers to the market, picking up prices and moving Bitcoin in a long-awaited upward trajectory. For the hopefuls in the market, the track record so far isn’t good. It could be that the SEC is waiting for Bitcoin to move first.

With Gemini’s failure to become the first-ever cryptocurrency ETF on a regulated exchange came other subsequent rejections by the SEC: five more applications failing in the same week as the second Winklevoss attempt. This latest string of rejections seems to be a cementing of the SEC’s hard-line stance.

GraniteShares, one of the ten unsuccessful proposals to the SEC, sees the agency regarding crypto assets as a high-risk class, one of the issues that may add to the tardiness of any decision. Co-founder Will Rhind says the commission is even tougher on cryptocurrencies than conventional futures because of the risk factor, arguing:

“That risk has always been a disclosure issue… But in this case, we had to go way beyond that and prove that the market is not being manipulated, which is a standard that is impossible to prove.”

Patomak Global Partners chief executive Paul Atkins was on the inside once as an SEC commissioner. He sees time as crypto’s best friend: “Is [the SEC] a merit regulator, or should investors be able to decide for themselves what to invest in?”

With three re-evaluations by the SEC of proposals turned down earlier this year, in part because of the concern that the cryptocurrency market is too small, Loder agrees that time may well become the saving grace for Bitcoin ETFs. But if this is the case, Bitcoin trading would need to take the much-awaited leap forward which the crypto community is waiting for in order for the SEC to sit up and take notice.

 

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Australia To Get Its First Stablecoin Next Year

Next year, Australia will get its first stablecoin developed in partnership between a local exchange and a crypto employment platform.

The Emparta infrastructure empowers employers and job-seekers with instant onboarding and optional payments in cryptocurrency, allowing businesses to identify, select, and onboard employees. The company will combine with crypto exchange Bit Trade to release the coin according to an announcement made this week.

Bit Trade has announced that it wants to be the first one in Australia to use the virtual currency, suggesting that due to its value being backed by an underlying asset it will be less liable to volatility. Bit Trade’s managing director Jonathon Miller sees the stablecoin doing as its name suggests in a fluctuating crypto market. He commented:

“Stablecoins solve one of the principal issues that may drive investors seeking steady returns and merchants that currently accept traditional currency away from digital currencies: volatility.”

Miller sees such coins as going a long way to promoting further interest in the country’s already flourishing crypto market, given that the regulatory environment continues to move in the right direction. Currently, Australians are showing more interest in cryptocurrencies, with recent figures from HiveEX showing that those ‘hodling’ crypto assets have increased from 5% in January to 13.5% when the figures were reviewed in August of this year. Bit Trade’s chief added that this level of adoption could well continue with such introductions into the market:

“We believe that stablecoins will boost trust, accelerate wide-spread adoption, and could function as the backbone of blockchain-based financial applications, especially here in Australia given the favourable regulatory environment.”

In order to back the stablecoin with Australian dollars, the first treasury of the new stable coin would be held in Australia, the AUD-backed coin being redeemable on demand. Currently, there are other stablecoins available along with Tether, including the newly announced Gemini Dollar.

This stablecoin, launched by the Winklevoss twins, will allow users a one to one exchange on the US dollar on the Ethereum blockchain. They commented on the approval, suggesting that their thinking behind Gemini was a “first step… making it safe and easy to buy, sell, and store cryptocurrencies”.

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Cboe President Still Hopeful for First ETF Approval

The race to receive the coveted spot as the first Securities and Exchange Commission (SEC) approved Bitcoin exchange-traded fund (ETF) continues and Cboe Global Markets Inc believes it still has a chance to make it.

Speaking to Bloomberg, Cboe’s exchange operator’s president and chief operating officer Chris Concannon said that it was a matter of working through the issues that concern the SEC before an ETF can be approved. He believes Cboe can achieve this but recognizes the growth of a strong Bitcoin futures market may mean that a futures-based ETF may come first, rather than an exchange for the cryptocurrencies themselves.

What Concannon sees potentially problematic here, however, is that a futures-based ETF has never been done before, and it could be a struggle to find enough liquidity. Futures trading volumes have remained low compared with commodities contracts such as gold, although an ETF would certainly prompt a significant increase in trades. The SEC is hesitant to approve such an ETF until futures trading can provide sufficient liquidity, however.

Concannon said that he had learned there have been more articles than volume, describing the amount of media attention the market gets compared to its size as ”shocking”. He noted that the entire cryptocurrency market was only a fifth that of multinational technology company Apple.

Cboe was the first company to usher Bitcoin into mainstream finance during its bullish run in December last year, offering futures contracts for the cryptocurrency. Many interpreted this as a signal Wall Street was turning in favor of Bitcoin, with an ETF finally becoming foreseeable.

The SEC cited the potential for market manipulation in the nearly entirely unregulated market as the primary reason to deny approval, as was the case in the Winklevoss brothers rejection. The SEC said that they would require a surveillance sharing agreement with a large Bitcoin exchange to ensure no manipulation is taking place, of which the Winklevoss Bitcoin Trust could not provide at the time.

 

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Winklevoss Bitcoin Trust ETF Rejected By SEC

Anticipation of the first Bitcoin exchange traded fund (ETF) being approved has helped induce a Bitcoin rally that saw prices climb from USD 6,200 to USD 8,500. The most hyped Bitcoin ETF is one from VanEck and SolidX, but there are other ETFs that have been proposed to the Securities and Exchange Commission (SEC) including the Winklevoss Bitcoin Trust. In a 92-page document dated 26 July 2018, the SEC thoroughly analyzes and rejects the Winklevoss Bitcoin Trust, which might be the reason behind Bitcoin’s drop to USD 7,900 today.

The VanEck SolidX Bitcoin ETF is being hyped up because it uses actual Bitcoins, so if it is approved then it would allow investors to buy Bitcoin on any of the major stock trading platforms. The Winklevoss Bitcoin Trust uses actual Bitcoins as well, and now it has been rejected, raising fears that the SEC is not ready to approve a Bitcoin ETF even if it uses actual Bitcoins. In the past, ETFs that depended on Bitcoin Futures have been rejected for being too risky, and it was thought an ETF which uses actual Bitcoins might be accepted.

The main reason the SEC rejected the Winklevoss Bitcoin Trust is that it says the Bitcoin market is susceptible to manipulation. The SEC can approve a commodity-based ETF even if its market is small enough to be manipulated, but it requires a surveillance sharing agreement between the listing exchange and a major exchange. The exchange looking to list the Winklevoss Bitcoin Trust, Bats BZX exchange, entered into a surveillance sharing agreement with the Gemini Bitcoin exchange, but Gemini is tiny compared to the big crypto exchanges. The SEC says it wants a surveillance sharing agreement with a big Bitcoin exchange to ensure no manipulation, which is something the Winklevoss Bitcoin Trust has no control of.

Clearly, the SEC can use similar reasoning to reject the VanEck SolidX Bitcoin ETF. The SEC goes further to say that most Bitcoin trading is done overseas and not properly regulated. The SEC says that if markets become properly regulated it may approve a Bitcoin ETF, but is clear that in the current situation it would not approve a Bitcoin ETF without surveillance sharing agreements with major exchanges. It is unlikely that major Bitcoin exchanges would consider handing over all of their information to the SEC, especially since none of the major exchanges are in the United States.

While this SEC decision is aimed at the Winklevoss Bitcoin Trust, it is essentially a 92-page research paper explicitly and coherently explaining how the SEC would never allow Bitcoin to be traded on the stock market under current conditions.

 

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Winklevoss’s Gemini Integrates Block Trading for Crypto Whales

Trading platform Gemini, founded by the Winklevoss twins, announced Monday the introduction of block trading, with the goal of facilitating trades for those looking to exchange large sums of cryptocurrency.

As more institutional traders enter the market, publicly-open trading exchanges are not equipped to facilitate their substantial currency transactions and are extremely sensitive to high-value trades that take place.

The Winklevoss twins are looking to cater to the growing number of investors and hedge fund managers utilizing the cryptocurrency market while proving that block trading can potentially be conducted without destabilizing the market.

Block trading

Most exchanges maintain a central limit order book that keeps all transactions under a certain size, restricting trades to reflect the demand for the particular currency at the time. These limitations are there to prevent retail traders reacting to false signals of market movements that larger trades would create.

Block trading is utilized to overcome these restrictions, with larger trades that exceed the limitations being settled privately between the involved parties. A post on the Gemini blog lays out the conditions necessary for block trades to take place on the platform: “Any customer can place a block order that specifies: (i) buy or sell, (ii) quantity, (iii) minimum required fill quantity, and (iv) a price limit (the “Indication of Interest”)”.

The block trading orders will take place outside of Gemini’s continuous order books, with the pending transaction only successful if “a market maker agrees to “make a market” that satisfies the Indication of Interest”. There is a minimum investment of 10 BTC or 100 ETH to participate in block trades.

Gemini’s block trading service will go live on 12 April at 9.30am (EST). The exchange platform aims to publish confirmed trade information on its data feed within 10 minutes of being finalized. Block trading has the potential to reduce market volatility caused by cryptocurrency “whales” (the term given to large-volume traders) selling off large portions of their assets.

A recent substantial sell-off by a trader using the handle Mt. Gox, is reported to have influenced Bitcoin’s recent crash that reached nearly USD 6,000. Other platforms have already adopted block trading, most notably gaining popularity in Asian-based exchanges. Circle Trade is one such platform already utilizing block trading, with its website citing it is currently moving USD 2 billion a month.

Block trading companies have recently gained massive popularity in Asian trading hubs such as Hong Kong and also in Australia. With significant financial players including the Rothschilds, the Rockefellers and George Soros entering the cryptocurrency market, block trading is going to be a necessary adoption for all platforms looking to cater to these investors.

 

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DealBook – Winklevoss Bitcoin Trust

DealBook – Winklevoss Bitcoin Trust:

NY Times financial reporters Nathaniel Popper (@NathanielPopper) and Peter Lattman (@PeterLattman) broke the news that the Cameron and Tyler Winkelvoss have filed with the SEC a proposal to create a Bitcoin exchange-traded fund.  Excerpts:

“The plan involves an exchange-traded fund, which usually tracks a basket of stocks or a commodity, but in this case would hold only bitcoins.”

“The Winklevoss Bitcoin Trust could send digital money from the realm of computer programmers, Internet entrepreneurs and a small circle of professional investors like themselves into the hands of retail investors — virtually anyone with a brokerage account.”

“‘The trust brings bitcoin to Main Street and mainstream investors to bitcoin,’ said Tyler Winklevoss, co-founder of Math-Based Asset Services, which would operate the proposed fund.”

“Their proposal has the advantage of coming from the desk of Kathleen Moriarty [who had] a leading role in the creation of the first exchange-traded fund and popular gold- and silver-backed E.T.F.’s.”

“The Winklevosses [previously] went public with their own bitcoin hoard, amounting to about 1 percent of all outstanding coins, or about $10 million.”

“An exchange-traded fund would make it significantly easier to gain exposure to bitcoins, just as commodities-based funds have made investing in gold, silver and other precious metals more accessible.”

“The Winklevoss fund would buy one bitcoin for every five shares, making the value of a single share worth about a fifth of a single bitcoin.”

“‘Digital currencies are not going away,’ said Carol Van Cleef, the head of law firm Patton Boggs’s emerging-payments practice.”

 – http://nyti.ms/1cK00Ys
 – http://1.usa.gov/13i07w0 (Proposal / S-1 Registration Statement)
 – http://bitcointalk.org/index.php?topic=248013.0 (Further discussion)

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