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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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