Guest post by Guglielmo Capone, Cryptocurrency expert. Business manager and Advisor in crypto ICO
Following the extension of the period for examination of the proposed amendment to exchange law 6, the committee expressed its opinion on the issue of ETFs, underlining that its disapproval is not due to a negative evaluation of bitcoin and blockchain technology, but rather the failure to meet the requirements for the securities exchange.
What is this new market?
“Bitcoin Futures Contracts are a new type of futures contract to be traded on the CFE and CME or other U.S. exchanges (if available). Unlike the established futures markets for traditional physical commodities, the market for Bitcoin Futures Contracts is in the development stage and has very limited trading and operational history. As such, the liquidity of the market for Bitcoin Futures Contracts will depend on, among other things, the supply and demand for Bitcoin Futures Contracts, the adoption of bitcoin and the commercial and speculative interest in the market for Bitcoin Futures Contracts and the potential ability to hedge against the price of bitcoin with exchange-traded Bitcoin Futures Contracts.
The Exchange represents that trading in the Shares of each Fund will be subject to the existing trading surveillance administered by the Exchange, as well as cross-market surveillances administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws. The Exchange asserts that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange.”
For this market proposal, the SEC has highlighted the importance of two fundamental and indispensable requirements.
The first is market security, the second is belonging to a market of significant size, and of course, the two are closely related to each other.
Market security consists of all the operations carried out in order to prevent fraudulent and manipulative acts and practices, in order to safeguard the interests of investors along with the public interest.
How will the commission be able to make sure that safeguards are effectively applied and that they are consistent with the law 6 on trade?
An optimal solution would be an agreement to share surveillance with a regulated market of significant size, and it is precisely here that the second requirement comes into play: in fact, as the SEC explains, in a “significant market” there is a reasonable probability that a person will attempt to manipulate the performance of the ETP and thus perform a series of fraudulent and manipulative acts, while in a “market of significant dimensions,” this will not happen, as this market is regulated and has the data series necessary to investigate a case in which some manipulative action should occur.
Returning to the initial concept of correlation between the two requirements required by the SEC, it certainly follows that Bitcoin is a young market and as such, is subject to manipulation that negatively affects the growth factor of trading activities, thus preventing the development of the market itself.
Would it be wrong to think that with appropriate market regulation, the latter would expand into a market of significant size?
How long can the power and all the benefits that the bitcoin market could bring and make be suppressed?
Perhaps the right person arrived at the right time: A few days ago, Elad L. Roisman was appointed as the fifth commissioner of the Security Exchange Commission, and this is the same Roisman who stated at the Senate hearing held on July 24, 2018, that: “It is essential that the SEC address these new challenges [ICO and blockchain] in a fair and transparent manner, provide clarity and certainty to markets and investors and apply the laws and regulations that make market participants accountable.”
Roisman, Hester Peirce and Jay Clayton are the three commissioners in favor of bitcoin ETFs; they are particularly in favor of the VanEck and SolidX ETFs proposed by the CBOE. The final decision for the proposal has till September 30, 2018, but the decision could be postponed for up to 180 days, when considering the SEC document from September 20, 2018, which lays out the procedure and verification to approve the ETF according to the federal securities guidelines. The SEC has to date received over 1400 documents on the proposed change of law.
The VanEck and Solidx ETFs are likely to be approved thanks to three main factors, the first being the support from the BBOX Equities Exchange (CBOE) of the Chicago Stock Exchange, which has already created a solid infrastructure and has experience in institutional exchanges, which should solve the problems of manipulation of the SEC market. Secondly, the ETFs are backed by an actual bitcoin. The third factor is that VanEck began in 1995 and has an excellent reputation in the investment sector today, so combined with the Crypto Start-up, SolidX they create a winning pair.
There’s also another piece of news that could completely escalate the situation, which is the resignation of Commissioner Kara M. Stein due to the expiry of her mandate, who has always been against the world of bitcoin ETFs.
So from five, the commissioners would become four and as said before three out of four are already in favor.
Will President Trump decide to appoint a new commissioner, perhaps a democratic reformist more open to innovation?
Let’s not forget Bakkt’s arrival in November.
If this happens for bitcoin ETFs, the possibility for approval by the SEC will greatly increase.
The future of the economic world is changing and as in every change, there are phases of decline, recovery and stabilization. It is up to us to decide whether to stay in the past or touch and glimpse the beauty of the future.