July 11, 2018
Dear Sirs,
From my understanding of the main reasons the SEC has previously denied Bitcoin ETFs in the past, please consider my following comments:
- Security: there has been significant progress in securing the underlying Bitcoin asset, protecting it from hacking and loss. Coinbase and Xapo are custodians for $billions in Bitcoin and have not suffered a loss for their customers. The industry is now fully aware of security best practices and hacking events more recently have tended to be for other 'crypto' assets that may be harder to secure due to a less mature ecosystem.
- Manipulation / unregulated market: I view this as a chicken and egg situation. Until the regulated markets permit Bitcoin trading, then trading volumes will seek 'offshore' jurisdictions or those with more relaxed oversight. Having said that, the marketplace has dramatically changed in the past 18 months, with Japan and South Korea contributing significant trading volumes ... both now fully regulated markets. China has shut down their domestic exchanges, and therefore much of the 'zero fee' trading has been shut off, reducing the ability for anyone to manipulate the market.
Coinbase, Gemini, etc. have also grown significantly, allowing us to be more confident that the market has matured to a point where an ETF could be permitted. It is somewhat bizarre that retail customers may trade on those exchanges but sophisticated investors may not trade an ETF via the major stock exchanges!
Assuming an ETF was indeed allowed, it would likely attract significant trading volume (e.g. the Swedish Bitcoin ETN on Nasdaq often achieved top volume traded on that exchange in a day) ... again making it harder for the market to be manipulated elsewhere, and encouraging more trading in the US vs other countries.
As a more macro point, it is quite clear that there is a significant commercial opportunity here for a wide range of existing and new US businesses to capitalise on the growing interest in crytpocurrencies. Both the SEC and CFTC have had to scale up their capabilities to regulate and oversee these markets ... an ETF would help offset those costs by assisting growth in a variety of tax revenues.
Given the proposal is for quite a large minimum investment, I believe you can be assured that the investors will be sophisticated enough to understand the risks they are taking.
Many thanks for considering my feedback.
Alistair Milne
CIO, Altana Digital Currency Fund
(one of the first 'crypto' hedge funds in the world - launched mid-2014)
http://www.altanawealth.com/