American regulators are unlikely to green-light Bitcoin ETFs (Exchange-traded Funds) this year, but a China-based expert says that once approved, crypto ETFs will usher in a multitude of benefits to the industry.
Matthew Graham, CEO of the China-based advisory company Sino Global Capital and General Partner at Liquid Value, spoke on the matter during an AMA (ask me anything) session hosted last week by TokenInsight, a token data and rating agency.
Graham was discussing the fact that regulators have rejected Bitcoin ETF on multiple occasions in the past, and was commenting on the possibility of a crypto ETF gaining regulatory approval in 2020.
Graham, who opined that crypto ETFs may finally see the light of day in 2021, stated,
“From our perspective, we don’t think the applications will be able to meet the burden of proof in 2020.”
He said that the slowdown could be due to the conservative nature of the institutions in the United States, regulatory bodies in particular, and the slow pace at which they operate.
Crypto ETFs were a hot topic of discussion last year, with observers eagerly observing the deliberations of the Securities and Exchange Commission (SEC).
If and when they do get the go-ahead, said Graham, an approval could lead to an influx of institutional capital.
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Other industry-wide effects could also follow.
For instance, a crypto ETF approval would symbolize institutional acceptance. But while this could very likely set off a bull rally, per Graham, an ETF green light would not directly stimulate crypto demand. Instead, approval would likely represent a step in the long institutionalization process. As such, its benefits would be more indirect and “likely to be related to perception and a ‘halo effect’,” the CEO explained.
Signs are relatively promising: as Graham pointed out, SEC Chairman Jay Clayton has previously stated that “progress is being made” on the crypto ETF front.
Graham went on to explain that the most important consideration for the SEC is the potential for market manipulation.
Clayton has previously asked, “Given that they trade on largely unregulated exchanges how can we be sure that those prices aren’t subject to significant manipulation?”
Graham also spoke about the possibility of entering “surveillance-sharing agreements,” whereby the SEC could monitor listing exchanges and the market, to see which entities are making trades. It could then also check on the size of trades, and investigate alleged instances of market manipulation.
“Furthermore it’s notable that this isn’t an innocent-until-proven-guilty situation,” Graham added. “The burden of proof is on the applicant to satisfy any SEC concerns.”
Applicants need to take into consideration the fact that SEC is a conservative institution, and “one that quite candidly has close ties to Wall Street and other entrenched interests that are quite wary of Bitcoin specifically and crypto in general.”
As previously reported, a number of firms have unsuccessfully attempted to win SEC approval for crypto ETF products.
According to a research paper released by Sino Global, the regulator’s reasons for refusal have included the following:
- the Bitcoin market is not orderly or efficient;
- it is largely unregulated and has no market surveillance;
- it can be easily manipulated;
- the ETF will be the predominant source of influence on prices in the market;
- the valuation methodology used in ETF product proposals is not clear;
- the Bitcoin Market is not sufficiently liquid to support an ETF;
- no professional market makers can currently support a Bitcoin ETF.
The paper also lists three reasons for the possible future approval of a crypto ETF, pointing out key flaws in the SEC refusals, namely:
- there are a number of Bitcoin “exchanges” that are subject to money center or trust bank regulations with transparent order books and matching methodologies;
- ETFs have been approved for gold, silver and other precious metals where the underlying spot markets are demonstrably inferior to Bitcoin;
- there have been many allegations of manipulation related to other commodities that already have ETFs, so it seems like the SEC is holding Bitcoin to an unreasonably higher standard.
Among the many companies who have applied are the likes of New York-based Wilshire Phoenix, which filed to launch the United States Bitcoin and Treasury Investment Trust ETF in May with NYSE Arca.
Unlike other ETF applications, said Wilshire Phoenix, its ETF would seek to invest in both Bitcoin and United States Treasury securities (commonly referred to as T-bills). The product would also look to address the regular’s concerns on several levels, and make use of a surveillance sharing agreement. The SEC has postponed its ruling on this product and says it will either approve or reject it by February 26.
Graham’s comments echo sentiments expressed by Gemini Trust co-founder Cameron Winklevos, who recently told the Financial Times,
“ETFs, historically, have been a huge boon for industries like the gold market. It’s something that people understand: ETFs have been around for at least 25 years, so it’s not reinventing the wheel.”
Learn more: Why US BTC ETFs Matter if ‘No One Cares’ About European ETNs and ETPs