Industry Updates

Crypto market is ‘efficient’ enough for Bitcoin ETF, Bitwise says

George Geddes

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Bitwise Asset Management proposed for its latest Bitcoin ETF with the US Securities and Exchange Commission (SEC) back in January having had previous filings rejected due to regulatory concerns. However, Bitwise has waited months for the SEC to give its verdict on the ETF as the regulator has postponed its decision several times already.

In its bid to encourage the SEC to launch its bitcoin ETF, Bitwise presented to the regulator on Tuesday how the cryptocurrency market has improved over the last couple of years and is stable enough to launch an ETF exposed to the digital asset.

In a 30-page presentation, Bitwise says to the SEC that the “bitcoin market has materially improved in the past two years”. There are three factors for why the market has improved which include:

  • Bitcoin spot market has become efficient

  • Bitcoin custody has become fully institutional

  • The regulated futures market has become significant

According to Bitwise, the average deviation in the price of bitcoin on 10 exchanges has reduced significantly over the past 20 months. In December 2017, the average deviation was nearly 0.9% but has fallen to around 5 basis points as of August 2019.

Additionally, there are 10 custodians which are regulated, or are pursuing regulation, in the US, eight of which have insurance in the case of theft, loss or fraud. Back in 2017, only three out of the 10 custodians were regulated and none had insurance.

Finally, the average daily volume for bitcoin futures on the CME in August 2019 was $230m. Bitcoin futures accounted for between 20 and 45% of spot volume in 2019, up from 3% in December 2017.

Why bitcoin ETFs deserve a green light

Despite these improvements to the efficiency of the bitcoin market, Bitwise highlighted reports of bitcoin trading volumes being faked by unregulated exchanges. In response to concerns raised by this, Coinmarketcap, a market capitalisation platform, improved its metrics by introducing its Data Accountability & Transparency Alliance (DATA).

A similar company named Nomics launched a requirement to verify data feeds for exchanges with volume claims to improve the transparency and accuracy of its data.

Bitwise isn’t the only firm to which has applied for a bitcoin ETF with the SEC. Wilshire Phoenix and VanEck also proposed for an ETF however, VanEck pulled its application earlier this week following an underwhelming start for its 144A Bitcoin Shares which started trading at the beginning of September.

Taking into consideration the points put across in the presentation, the SEC has until 13 October to either accept or reject Bitwise’s proposal.

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