SEC Rejects Spot Bitcoin ETFs Due to Fake, Manipulated Volume – Protos

Critics of the SEC’s rejections to a bitcoin spot ETF have accused the agency of being vague and anti-bitcoin. However, communications from the commission tend to be quite specific about its concerns. Currently, there are an exhaustive five years of response letters for ETF applicants to review.

The SEC has also hosts office hours and meetings for bitcoin ETF applicants. For example, on March 20, 2019, Lauren Yates of the SEC’s Exchanges and Markets Division’s Market Surveillance Office, cited a meeting between the SEC, Bitwise Asset Management, NYSE Arca, and law firm Vedder Price. . The meeting included a discussion of NYSE Arca’s proposal to list Bitwise’s Bitcoin ETF Trust.

Yates attached slideshows of a presentation given by Bitwise. According to the presentation, Bitwise planned that its Bitcoin ETF Trust would provide direct exposure to bitcoin through a regulated and insured third-party custodian. He acknowledged the SEC’s concerns about market manipulation and said he could alleviate them.

95% of volumes reported by exchanges are unreliable

Bitwise claimed that up to 95% of trading volume reported to CoinMarketCap regarding bitcoin transactions could be fake or uneconomical (wash trade is an example of uneconomical volume). Crypto exchanges continue to lie today in order to convey liquidity and strength – the actual size of bitcoin and all crypto markets is only a fraction of what exchanges report through their APIs.

Bitwise showed screenshots of transactions from what it called a more “real” exchange – Coinbase Pro – while stressing that market manipulation is less likely to occur on US exchanges. Also, that offshore exchanges are likely to have less genuine trading volumes, fewer website visitorswider supply/demand and fewer social media followers.

The San Francisco-based index fund manager also said offshore exchanges are more likely to have long periods without trading volume and less variation in trading.

Bitwise accused “fake” exchanges like CoinBene and BitMart of artificially inflating their trading volumes to attract signups for which they could charge high signup fees. At the time, according to Bitwise, they would have made a lot of money from ICO project teams through listing fees.

For an idea of ​​the scale, Bitwise explained that the actual trading volume at the time was probably closer to $273 million. that the 6 billion dollars self-reported by exchanges. Only ten of the 81 largest exchanges reported accurate remote transaction histories for bitcoin.

• Bitwise presented to the SEC in March 2019.
• Other bitcoin price index providers follow similar patterns to calculate a reliable price.
• Indices from Bloomberg, S&P, CF Benchmarks, Brave New Coin, Coindesk, and CryptoCompare exclude all types of self-reported exchange data when calculating bitcoin price.

Litany of SEC rejections for spot bitcoin ETFs

Bitwise’s presentation did little to reassure the SEC. In June 2022, the SEC rejected the Bitcoin ETF proposed by Grayscale. He said Grayscale failed to address his concerns about market manipulation. Grayscale promptly filed a lawsuit alleging that the SEC wrongly rejected its proposal to turn its GBTC product into an ETF.

In January 2022, the SEC rejected SkyBridge’s Bitcoin ETF for similar reasons. He said SkyBridge had failed to establish that it would “prevent fraudulent and manipulative acts and practices”.

Read more: Gary Gensler still backs the SEC to be the best crypto regulator

In November 2021, the commission also rejected VanEck’s bitcoin spot ETF application. “The SEC’s decision to deny the VanEck Bitcoin ETF application comes as no surprise, given comments made by SEC Chairman Gary Gensler in recent months,” DailyFX senior strategist Christopher Vecchio told TheStreet.

Gensler has previously hinted that the SEC intends to take its time with spot crypto ETFs until Congress provides more clarity on which regulatory body is responsible for the control of matters related to digital assets.

Other Crypto Markets Flooded With Washout Trade

In 2022, wash trading gained attention through the analysis of NFT markets. Bloomberg wrote in April that since launch, 95% of traders on popular NFT marketplace LooksRare have been selling NFTs to themselves. The outlet noted that the washout trade on LooksRare helped the market mask an overall decline in demand for NFTs.

Chainalysis backed this up with a report that the NFT market includes a lot of washing trade and even a small amount of money laundering. Chainalysis’ February 2022 report on dishonest activities in the NFT space indicates that washout transactions have generated millions in profits for independent traders.

So, with no end in sight to washing away trading, false volume reports, and market manipulation, is there any hope for a spot bitcoin ETF? Eventually, in the distant future, the SEC may approve the ETF. It’s already given Bitcoin investors a ray of hope: commissioners Approved ETFs based on futures contracts by ProShares and Valkyrie – which started trading on NYSE Arca and NASDAQ respectively – in October 2021.

However, the commission continues to be reluctant to approve bitcoin spot ETFs or other complicated ETFs, such as products that offer leveraged or short exposure to the price of bitcoin.

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