Representatives from VanEck, SolidX, and the CBOE’s BZX Exchange had a meeting with the U.S. Securities and Exchange Commission (SEC). According to reports, the objective of the meeting was to show SEC officials that the bitcoin market has reached a level of maturity comparable to similar commodities, such as crude oil, silver, and gold, which all have tradable ETF’s.
The SEC had members of their Division of Corporation Finance, Division of Trading and Markets, Division of Economic and Risk Analysis and Office of General Counsel present in the meeting, to hear the case for the Bitcoin ETF. The ETF issuers made the argument that: “similar to commodity futures, the spot and futures prices [of bitcoin] are tightly linked,” which confirms that we have “evidence of a well-functioning capital market.”
Another strong reason presented for bitcoin ETF approval was that it’s unlikely for there to be insider trading around any changes to the BTC supply. Unlike crude oil or precious metals, which can be suddenly discovered or impacted by global events, the supply of bitcoin is fixed and will never change. In addition, the fact that Bitcoin is traded across so many mediums (futures, options, and spot) without a price differential could show that manipulation is not happening:
The linkage between the bitcoin markets and the presence of arbitrageurs in those markets means that the manipulation of the price of bitcoin on any single venue would require manipulation of the global bitcoin price in order to be effective … Bitcoin therefore is no more susceptible to manipulation than other commodities, especially as compared to other approved ETP reference assets.
A few days ago, SEC Chairman Jay Clayton spoke at the Consensus: Invest Conference in New York City. During this interview, he spoke about the legality of initial coin offerings (ICOs), but also touched on what it would take for a bitcoin ETF to be approved. He believes there won’t be any cryptocurrency ETF until market manipulation and custody are completely fixed:
What investors expect is that the trading in that commodity that is underlying the ETF is trading that makes sense, is free from the risk or significant risk of manipulation. Another thing they really care about, [that] we really care about, is that the assets underlying that ETF... that you have good custody of it, that it's not going to disappear, that the risk in the ETF is truly the risk in the value of the underlying asset, it's not the risk of theft or disappearance. Those two issues are important to me to get comfort on before we would allow an ETF with a digital currency underlying it to go forward.
Could these developments mean that an ETF is coming soon? It’s too soon to tell, but every day it seems more likely that a bitcoin ETF will happen sometime in the future.