The Cryptocurrency Volume Plague Could Actually Raise Odds of Bitcoin ETF Approval

bitcoin etf
Ironically, the fake crypto trading volume plague could increase the chances of the SEC approving a bitcoin ETF. | Source: Shutterstock

In March 2017, the U.S. Securities and Exchange Commission (SEC) denied the first ever bitcoin exchange-traded fund (ETF) proposal.

Since then, many bitcoin ETF applications have been filed by nearly ten companies, and many of them have been rejected by the SEC for similar reasons.

This week, in a presentation to the SEC, Bitwise revealed that the overwhelming majority of the trading volume in the bitcoin exchange market is fake and that a substantially large portion of the global bitcoin volume comes from the United States.

Ironically, the fake volume plague in the cryptocurrency exchange market may increase the probability of a bitcoin ETF approval.

The Fake Crypto Volume Paradox

bitcoin etf
Since most crypto volume is fake, regulated U.S. exchanges account for a much larger slice of the global bitcoin pie. | Source: Shutterstock

Two years ago, when the SEC rejected the first bitcoin ETF proposal filed in the U.S., the commission emphasized three factors:

  1. Vulnerability to manipulation
  2. Lack of regulations in overseas markets
  3. Lack of surveillance

“The Commission believes that, in order to meet this standard, an exchange that lists and trades shares of commodity-trust exchange-traded products (“ETPs”) must, in addition to other applicable requirements, satisfy two requirements that are dispositive in this matter. First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated,” the SEC said at the time.

In the past two years, major overseas cryptocurrency markets in the likes of...


MIT Bitcoin Expo: Legislators Discuss Regulation, Potential of Blockchain Technology

Hyperbitcoinization enthusiast and writer

 MIT Bitcoin: Legislators Discuss Regulation, Potential of Blockchain Tech
MIT Bitcoin: Legislators Discuss Regulation, Potential of Blockchain Tech

On March 9–10, 2019, the Massachusetts Institute of Technology hosted a two-day event, the MIT Bitcoin Expo 2019. Put together by the student-organized MIT Bitcoin Club, the conference welcomed more than just Bitcoin voices from every corner of the industry. One of those voices was that of U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce.

Peirce sat down with Gary Gensler, ex-chairman of the Commodity Futures Trading Commission, senior lecturer at the MIT Sloan School of Management and senior advisor to the director of the MIT Media Lab, to discuss the progress of the SEC’s efforts to regulate the cryptocurrency industry. Notably, Gensler and Peirce launched into a discussion on what regulators can do better to protect investors from fraud and malicious actors.

Before the debate began, both Gensler and Peirce expressed their appreciation for the emerging technology. “It’s a new way to have tamper resistant data amongst the consensus of multiple parties,” Gensler said. “My research is mostly around the business of blockchain technology and … trying to find where are the real use cases where traditional data structures don’t work as well.”

Peirce expressed her own support for the space in relation to the SEC’s ongoing efforts to properly regulate it. “We have rules on the books that we have to enforce, but on the other hand, we don’t want to stop people from doing things that are going to make society a better place to live, that are going to make people’s lives easier, and enable people to interact in ways that they have not been able to in the past.”

Later in the presentation, the two veteran regulators went on to discuss what the government can do to protect investors by possibly regulatinged cryptocurrency exchanges.

Gensler believes that “exchanges are the gateway to get good public policy, particularly around AML laws, but also around investor protection.” He continued, “In essence, that there’s not a manipulated market with frontrunning and manipulation with the order books and the like.”

The discourse was...


Messari launches disclosure registry for cryptocurrency projects

Messari, an open-source cryptocurrency focused version of the U.S. Securities and Exchange Commission’s EDGAR database, is launching a disclosure registry for token-issuing projects to publicly share information that might otherwise be difficult to find.

The registry, announced Tuesday at CoinDesk’s Consensus: Invest event, will share a range of typically non-public information, including token design, supply details, any audits of the technology, official communication channels, treasury management and details of team members.

Messari founder Ryan Selkis told CoinDesk that the platform is aimed at both standardizing and automating such information disclosures, making it easier for investors or casual observers to learn more about projects of interest.

“What we’re trying to do is make key information about these various crypto assets available to anyone, whether it’s a retail investor, a regulator, an academic or a mutual fund,” he said, adding:

“The most important thing for us is ushering in an era where that is the standard, versus today’s standard which is driven by information asymmetry and insiders, where...


Winklevoss Loss at the SEC

The US Securities and Exchange Commission issued its disapproval of  proposed rule changes that would have allowed the listing and trading of the Winklevoss Bitcoin Trust on the Bats BZX Exchange. The “Winklevoss Bitcoin Trust,” as its name might suggest, is the creation of Cameron and Tyler Winklevoss, notorious figures in the prehistory of Facebook, and ubiquitous figures in the world of Bitcoin.   

Technically the SEC decision on Thursday reaffirmed an earlier Disapproval Order, in March of this year. Bats BZX had petitioned for review of that disapproval order, and the SEC gave it a full-dress second look, a de novo review, giving “careful consideration to the entire record, including … all comments and statements submitted by BZX and other parties,” only to decide that the agency had gotten things right the first time.

The decision was not a unanimous one. Commissioner Hester Peirce dissented. The significance of the defeat of this proposal in the bigger picture of cryptocurrency history may be the extent to which her dissent throws light upon her thinking on the broad subject: she is the newest Commissioner, having just been confirmed in December 2017.


The Regulatory System(S) And Cryptocurrencies

Source oneQube by Christopher Faille

Edmund Mokhtarian and Alexander Lindgren have written a fascinating discussion of “operational issues and best practices” for cryptocurrency traders. As part of this broader discussion, they have provocative things to say about the regulatory system in the U.S. and about where, if anywhere, bitcoins and other cryptocurrencies fit into it.

The regulatory system in the United States is both fragmented and functional. There is no single administrative body whose job it is to oversee the capital markets as a whole, working toward efficiency on the one hand and working against fraud on the other. Instead, there are several agencies involved in this task or these tasks, the most important of which (the Commodity Futures Trading Commission and the Securities and Exchange Commission) are distinguished from each other by the sort of investment vehicle they oversee. As the names suggest, the CFTC oversees commodities trading, the SEC securities trading.

The fragmentation is “functional” in character in that the distinction is defined by the function the two types of instrument perform.  Commodities and securities have much in common.  They are both traded on markets, they are both quite liquid, and they both serve both profit seekers and risk hedgers. But what distinguishes them? Seventy years ago the Supreme Court gave the following ffunction definition if a security: it is an instrument by which “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”

The Function of a Security

By design, that definition is very broad, in order to make it difficult for security fraudsters to escape responsibility by saying that they aren’t really securities fraudsters.  The function of a security, whether called a stock or bond or something else, is to allow an investor to gain exposure to the gains of an enterprise (commonly a listed corporation) without making any further ‘effort’ other than the infusion of the money itself.

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