Another bitcoin exchange-traded fund (ETF) proposal is in the garbage. This time, the application came by way of two companies known as Wilshire Phoenix and NYSE Arca Inc., both of which wanted to “mix bitcoin and short-term treasuries.”
Arca Is Pushed Aside
The proposal from both ventures was immediately dashed by the Securities and Exchange Commission (SEC), thereby removing another opportunity for crypto enthusiasts to trade professionally. A regulator commented in a statement:
The Commission concludes that NYSE Arca has not established that the relevant bitcoin market possesses a resistance to manipulation that is unique beyond that of traditional security or commodity markets such that it is inherently resistant to manipulation.
This has been one of the biggest problems with the SEC. They do not believe that the bitcoin market is not susceptible to manipulation, and in many ways, they’re right not to think so. Bitcoin experienced a massive bull run in 2017 that saw one unit of the world’s most popular cryptocurrency trading for nearly $20,000 by the time December rolled in.
However, a report issued by University of Texas finance professor John Griffin ultimately claimed that bitcoin was being manipulated by users of Tether, a controversial stable coin that is allegedly backed by USD reserves. The report suggests that every time bitcoin fell by even the slightest margin, Tether owners would use their coins to purchase BTC, thereby tying it to the U.S. dollar and giving it a short, temporary boosts along the way.
This method ultimately backfired the following year. Bitcoin lost more than 70 percent of its overall value in 2018 and was trading for a measly $3,500 by Thanksgiving of 2018. The currency did not exhibit signs of recovery until April of the following year.
Changpeng Zhao of Binance fame also recently commented on how easily bitcoin and other cryptocurrencies can be manipulated through tactics like burnings.
ETFs Don’t Have a Good Run
Frank Koudelka – a global ETF product specialist at State Street – says that while he likes the idea of a bitcoin ETF, he understands the SEC’s stance on the matter. He explains:
Bitcoin ETFs make sense based on the efficiency of the ETF investment wrapper, but we understand the regulators’ stance on surveillance and market manipulation concerns. We are excited by the prospects for ETFs leveraging the blockchain, regardless of if they are digital currency or traditional asset classes. This ultimately provides the ability to broaden distribution and enhance efficiency.
Other big-time ETF proposals to get the axe in recent months include those submitted by Bitwise and Van Eck. The former’s application was ultimately rejected in late 2019, while Van Eck – which was in league with another company known as Solid X – pulled the plug on their own ETF proposal after nearly a year of delays from the SEC.