I got a lot of negative feedback from simply reporting that the SEC wanted answers to questions about regulating bitcoin in the mainstream market from My Post Yesterday. I am not here to argue about that, I have my opinions and you have yours. I think we can all agree that we do want bitcoin to be a mainstream commodity, and I think the SEC is a step in the right direction, you may disagree. I'm simply reporting the questions and hoping to bring in a communal response for those that agree that this could lead to a good thing for all of us and want to contribute thoughtfully.
I think a lot of these questions are ones we should be able to answer anyways, some I'm not sure I quite understand to begin with which is why I'm bringing this here, to a public forum.
/u/Fiach_Dubh spearheaded a similar project when This Very Thing hit Canada, and I think this generated a positive community response from r/BitcoinCA which led to This being sent as a response. They brought up a possibility of bringing this to r/BitcoinUSA but they only have 174 members and I think a US interest in bitcoin regulation might pique the interest of everyone, but I may be being presumably too "american" for my own good on that point. Regardless, here are the questions, let's discuss.
Questions as follows:
- What are commenters’ views on whether the Exchange has entered into a surveillance-sharing agreement with a regulated market of significant size related to bitcoin? What are commenters’ views of the Exchange’s assertion that the trading volume in bitcoin futures makes the market for bitcoin futures a regulated market of significant size related to bitcoin? What are commenters’ views on whether there is a reasonable likelihood that a person attempting to manipulate the Shares would also have to trade in the bitcoin futures market to manipulate the Shares? What are commenters’ views on whether it is likely that trading in the Shares would be the predominant influence on prices in the bitcoin futures market?
- What are commenters’ views on the relationship between the bitcoin futures market and the bitcoin spot market? For example, what is the relative size of these markets, and where does bitcoin price formation occur? Does the market, spot or futures, in which price formation occurs affect commenters’ analysis of whether it is reasonably likely that someone attempting to manipulate the Shares would have to trade in the bitcoin futures market, or that trading in the Shares would be the predominant influence on prices in the bitcoin futures market? To what extent, if at all, do recent developments in the bitcoin futures market—namely, the cessation of new bitcoin futures contract trading on the Chicago Futures Exchange—affect commenters’ analysis of these questions?
- What are commenters’ views on whether the trading relationship between the market for bitcoin futures contracts and the proposed Trust, which would hold physical bitcoins, would be similar to, or different from, the relationship between the market for freight futures contracts and the Breakwave Dry Bulk Shipping ETF (cited by the Exchange in the Notice),20 which directly holds futures contracts traded on that market? What are commenters’ views on how these similarities or differences might affect an analysis of whether it is reasonably likely that someone attempting to manipulate the Shares would have to trade in the bitcoin futures market, or that trading in the Shares would be the predominant influence on prices in the bitcoin futures market?
- What are commenters’ views on the Trust’s proposal to value its bitcoin holdings based on an index—the MVBTCO—that is calculated through a proprietary, non-public methodology that uses the privately reported bid/ask spreads of an unidentified set of U.S.-based market-makers in the OTC marketplace, which, the Exchange says, has no formal structure and no open-outcry meeting place? Is the use of a non-public, proprietary index to value holdings based on OTC activity an appropriate means to calculate the NAV of an exchange-traded product (“ETP”)? What are commenters’ views on whether determining NAV based on the index value at 4:00 p.m. E.T. might, or might not, create an opportunity for manipulation of the NAV or of the Shares? What are commenters’ views on the assertion in the Notice that, according to the Sponsor, the MVBTCO’s methodology reduces the possibility of an attempt to manipulate the price of bitcoin as reflected by the MVBTCO? What are commenters’ views on the Sponsor’s assertion, as described by the Exchange in the Notice, that “the OTC desks have a better measure of the market than any exchange-specific reference price, whether individually or indexed across multiple exchanges”
- What are commenters’ views on the Exchange’s representation that it will have in place a comprehensive surveillance sharing agreement with each of the OTC platforms that constitute the MVBTCO prior to the Shares listing on the Exchange? What are commenters’ views on the Exchange’s assertion that the regulated nature of each of the OTC platforms that make up the MVBTCO, the notional volume of trading and liquidity available on these platforms, the principal-to-principal nature of these platforms, and comprehensive surveillance sharing agreements with each of the OTC platforms (in addition to the Exchange’s standard surveillance procedures) are sufficient to prevent fraudulent and manipulative acts and practices in the Shares? What are commenters’ views on the extent to which each of these OTC platforms is regulated? What are commenters’ views on the extent to which each of these OTC platforms can, or does, conduct surveillance of bitcoin trading activity?
- What are commenters’ views on the size, liquidity, transparency, number and nature of market participants, and price discovery in the OTC market for bitcoin, both on an absolute basis and relative to the bitcoin spot market as a whole? What are commenters’ views on whether the volume of U.S. dollar trading of bitcoin—which excludes bitcoin trading against other sovereign currencies or digital assets—is a meaningful or appropriate measure of bitcoin market volume?
- The Exchange states that the Trust does not intend to report its OTC trading. What are commenters’ views on how the Trust’s unreported OTC trades may affect the calculation of the Trust’s NAV and the ability of market makers to engage in arbitrage?
- What are commenters’ views on each of the set of alternative means by which the Trust proposes to value its holdings in the event that the Sponsor determines that the MVBTCO, or another alternate pricing mechanism, has failed, is unavailable, or is deemed unreliable? What are commenters’ views on whether any of these pricing mechanisms, primary or alternate, would be affected by, or resistant to, manipulative activity in bitcoin markets?
- What are commenters’ views on the assertion by the Exchange that the dissemination of information on the Trust’s website, along with quotations for and last-sale prices of transactions in the Shares and the intra-day indicative value (or “IIV”) and NAV of the Trust, will help to reduce the ability of market participants to manipulate the bitcoin market or the price of the Shares and that the Trust’s arbitrage mechanism will facilitate the correction of price discrepancies in bitcoin and the Shares? What are commenters’ views on whether the liquidity of the OTC bitcoin market is sufficient to support efficient arbitrage between the price of the Shares and the spot price of bitcoin?
- The Exchange represents that it has entered into a comprehensive surveillancesharing agreement with the Gemini Exchange and is working to establish similar agreements with other bitcoin venues. What are commenters’ views on whether the Gemini Exchange is a regulated market of significant size? What are commenters’ views on whether there is a reasonable likelihood that a person attempting to manipulate the proposed ETP would also have to trade on the Gemini Exchange? What are commenters’ views on whether trading in the proposed ETP would be the predominant influence on prices in the Gemini Exchange? What are commenters’ views on whether the Exchange could enter into surveillance-sharing agreements with regulated spot markets of significant size related to bitcoin?
- What are commenters’ views of the Exchange’s assertions that bitcoin is arguably less susceptible to manipulation than other commodities that underlie ETPs; that the geographically diverse and continuous nature of bitcoin trading makes it difficult and prohibitively costly to manipulate the price of bitcoin; that trading on inside information regarding bitcoin is unlikely; that the fragmentation across bitcoin markets, the relatively slow speed of transactions, and the capital necessary to maintain a significant presence on each trading platform make manipulation of bitcoin prices through continuous trading activity unlikely; that manipulation of the price on any single venue would require manipulation of the global bitcoin price to be effective; that a substantial OTC bitcoin market provides liquidity and shockabsorbing capacity; that bitcoin’s “24/7/365 nature”21 provides constant arbitrage opportunities across all trading venues; and that it is unlikely that any one actor could obtain a dominant market share?
- What are commenters’ views of the Exchange’s assertions that transacting in the Shares will be geared toward more sophisticated institutional investors and will be costprohibitive for smaller retail investors? What are commenters’ views regarding whether brokerdealers are likely to offer fractional shares in the Trust to retail investors, permitting retail investment with a smaller financial commitment? What are commenters’ views of the Exchange’s assertions that the Sponsor believes that demand from new, larger investors accessing bitcoin through investment in the Shares will broaden the investor base in bitcoin, which could further reduce the possibility of collusion among market participants to manipulate the bitcoin market, in light of the possibility that broker-dealers may offer fractional shares to their customers?
- What are commenters’ views on the Exchange’s assertion that a minimum of 100 Shares outstanding at the time of commencement of trading will be sufficient to provide adequate market liquidity? What are commenters’ views on whether the 100-share minimum would affect the arbitrage mechanism? What are commenters’ views on the Exchange’s assertion that, even though the Trust would not comply with the minimum number of shares outstanding required by Exchange rules, the policy concerns underlying that requirement would be otherwise mitigated in the case of the Trust, because the lower number of Shares is merely a function of the price of the Shares and will have no effect on the creation and redemption process or on arbitrage?
- What are commenters’ views of whether the Trust’s proposed insurance coverage would affect trading in the Shares or in the underlying bitcoins? What are commenters’ views regarding the Trust’s proposed security, control, and insurance measures?
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