• Bitwise has submitted a new reply letter to the US Securities and Exchange Commission (SEC), setting out arguments for approving a Bitcoin Exchange Traded Fund (ETF).
• The SEC has postponed the decision on Wilshire Phoenix’s Bitcoin ETF application until next year.

Crypto-asset manager Bitwise has sent a new letter to the US Securities and Exchange Commission (SEC). With this letter, Bitwise is reacting to the 112-page rejection order of the SEC against the Bitwise Bitcoin Exchange Traded Fund (ETF), which was published in mid-October. In the letter, the company states that it is “committed” towards establishing a Bitcoin Exchange Traded Fund (ETF).

In its response, Bitwise is trying to allay the SEC’s concerns about market manipulation and reiterated that the Bitcoin ETF will also help mature the market. On the question of why a Bitcoin ETF is needed, Bitwise stated:

The answer is simple: Because a large number of U.S. investors are today investing in Bitcoin, and the question of whether they are able to access the market safely and efficiently, and with the protections offered by the federal securities laws, is critical.

According to Bitwise, the Grayscale Bitcoin Trust (GBTC) is currently the only instrument that allows retail investors to access Bitcoin through a traditional brokerage account, which is why there is strong demand for the product. In this regard, Bitwise referred to the recently published study by Charles Schwab, according to which the GBTC currently holds the fifth largest share in Millenials’ bond retirement accounts, ahead of stocks such as Disney, Netflix and Microsoft.

However, the ability of GBTC to offer high availability of Bitcoin is limited. According to Bitwise, the high demand for Bitcoin among retail investors is reflected in the fact that Coinbase has over 30 million users, more than Charles Schwab, TD Ameritrade or E*Trade.

Bitcoin is more tamper-proof than traditional markets

With regard to market manipulation and monitoring, Bitwise stated that the Bitcoin market is “uniquely resilient”. Unlike traditional markets, the Bitcoin price is not determined by coordinated pricing, but is based on the open market. Market manipulation scandals, such as the London LIBOR rate (LIBOR) scandal of 2012 or the global forex trading scandal of 2013 are therefore not possible. Bitwise also argued:

We further noted that bitcoin’s inherent fungibility and the market’s distributed nature allowed for effective arbitrage to take place between different trading venues, which helped insulate Bitcoin from attempts to manipulate individual markets. Supporting this argument, we demonstrated that the quality of arbitrage between various real Bitcoin spotmarkets was high.

Regarding the demand for joint monitoring, Bitwise said that the NYSE Arca, where the Bitwise ETF will be listed, has a joint monitoring agreement with Chicago Mercantile Exchange (CME).

As another example, the CME CF Bitcoin Reference Rate that is used to settle the CFTC-regulated CME bitcoin futures contracts relies on a robust set of rules that account for data sharing and concerns about market manipulation. This rate is governed by an Oversight Committee, chaired by the CME, and draws prices from five spot bitcoin exchanges: Bitstamp, Coinbase, Gemini, itBit, and Kraken.

Although the letter does not provide any new insights and certainly does not prompt the SEC to change its decision, the letter shows Bitwise’s commitment to continue to lobby for the approval of a Bitcoin ETF.

SEC postpones decision on Bitcoin ETF from Wilshire Phoenix

In a parallel development, the SEC has postponed the decision on a Bitcoin ETF application submitted earlier this year by Wilshire Phoenix, a New York-based financial services provider. The SEC has extended the processing period for the application until February 26, 2020.

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