Good day. I, a United States citizen, would like to address File Number SR-CboeBZX-2021-019. My responses to the questions you raised are as follows:
- I do not believe that the proposed Trust and Shares would be susceptible to manipulation any more than any other ETF, and in fact, I believe it is far less susceptible. Unlike with commodities such as gold and oil, Bitcoin has a fixed, predictable supply. One new block is mined every 10 minutes on average, rewarding 6.25 BTC to whomever successfully mines the block, and a total of 21,000,000 BTC will exist. No more, no less.
Being that Bitcoin is decentralized and that changes to the protocol cannot occur without overwhelming consensus, it is not possible for malicious actors to increase or decrease the amount of supply that exists. Granted, anyone can add or remove liquidity from order books, but Bitcoin has a market cap of hundreds of billions of dollars. It's heavily traded at all times. The risk of manipulation is thus minimal at best.
In regards to the transparency of the Bitcoin market, it could not possibly be more transparent. Every on-chain transaction since the beginning of time is accessible by all. This makes Bitcoin absolutely, 100% suitable for an ETF. Those who want to can already hold things like GBTC shares or shares of companies like RIOT and MARA (as well as MSTR, TSLA, PYPL, et cetera). They loosely track the BTC spot price (some more than others), but investors are given additional volatility beyond that of the actual BTC price with these investments. A Bitcoin ETF would 100% solve this problem and protect investors.
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Bitcoin's market cap was under $10B for most of 2016. It lacked institutional demand at that time, and was in fact not far removed from the Mt. Gox debacle. Such an event is extremely unlikely to repeat itself now that the market cap exceeds $720B at the time of this writing (and it was over $1T earlier this year). Companies like Tesla and Square hold Bitcoin on their balance sheet. The market is much more mature, and it is mostly traded on reputable exchanges like Coinbase.
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Though Bitcoin is mostly traded on reputable exchanges, investors do not have the same protection they would have with an ETF because cryptocurrencies are not treated in the same way as stocks. There is a saying in the world of crypto: not your keys, not your coins. However, not everyone wants to be their own bank, so to speak, and there have been many instances in the past where people have lost their private keys and thus lost access to their Bitcoin. An ETF would bring the best of both worlds.
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In regards to the CME and Bitcoin futures in general, given the daily trading volume, it'd be extraordinarily difficult for a single entity to manipulate the market as you described. Macro factors such as inflation, threats of strict regulation and bans around the world, changes to the tax code, companies selling, or even comments from Secretary Yellen or Chairman Powell can negatively impact the price. Yes, people do sell on spot and also short Bitcoin in such a scenario. However, they do this with other things as well, and it's simply an investment strategy of getting ahead of something. Instances of the price spiking or falling off a cliff for absolutely no reason in the absence of these other factors are quite rare indeed.
The Bitcoin market is huge, and it is global. TSLA sold $150M worth of Bitcoin in order to see whether they could do so without significantly moving the market, and nobody would have had any idea if not for their quarterly earnings report. No one country is capable of dominating the Bitcoin market.
- Continuing with the point I was making previously, the amount of money it would take to actually manipulate the Bitcoin spot market through a Bitcoin ETF would be unfathomable. It would be so cost prohibitive that anyone who did try it would seriously regret it and would lose a lot of money. There are simply too many players involved and too much money involved for such a strategy to bear any fruit.
Bitcoin is not the same as low cap altcoins, and should not be viewed as such. It's easy to lump Bitcoin in with the shenanigans that take place in those markets, but they're about as dissimilar as OTC penny stocks are to AAPL.
It is absolutely true that the price that the Sponsor uses to value the Trust's Bitcoin is not particularly important. When Bitcoin is considerably less or more on any given exchange, arbitrage traders very quickly close the gap.
In conclusion, I am of the opinion that a Bitcoin ETF is long overdue. I hope you will agree.
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